Judge Lyle Strom said Wednesday, at the end of 2 1/2 days of testimony, that he plans to rule in Buffett's favor on a key issue in the case, although he said attorneys can file additional written arguments before he issues a written opinion in about two weeks.

Strom said the case boils down to a narrow issue: Was the "dominant motive" for Buffett's decision to borrow $747 million in 1988 and 1989 his intention to purchase dividend-paying stocks?

"That was not his dominant motive," Strom said, citing Buffett's testimony on Monday that the purpose was to boost the capital strength of National Indemnity Co., an Omaha insurance subsidiary of Buffett's Berkshire Hathaway Inc.

A decision in the case would not affect average taxpayers because the law applies only to corporations. And relatively few corporations find themselves in the tax situation that resulted in the lawsuit.

But the case is an example of how the IRS can interpret a tax law, propose a tax payment and then require the taxpayer to prove why it doesn't owe the tax. It's not certain that Berkshire would recoup the $16 million in taxes, plus interest, that it paid under protest for 1989 through 1991, since Strom's decision would be subject to appeal.

The case also showcased the efforts of Berkshire's seven-person legal team, which used networked laptop computers that at one point played an animated cartoon that showed buckets of corn being dumped into a silo and buckets of cash being dumped into a bank.

The cartoon referred to a comment made by an IRS agent in pre-trial testimony.

Strom's written decision may address other issues in the case, including the method that the IRS agent used in deciding that Berkshire had improperly claimed deductions both for the interest it paid on the loans and for the dividends it received from stock that it purchased.

Corporations can't claim that "double deduction" if they borrow money for the purpose of buying the dividend-paying stock. Congress passed a law to prevent that, saying it applied when corporations borrow money that is "directly attributable" to buying the stock.

That's where the buckets of corn came in.

Thomas Powell, a retired IRS agent who examined Berkshire's tax returns for 1989 through 1991, said he saw an article in Forbes magazine about Berkshire borrowing large amounts of money and then buying stock. He brought out the article when the IRS decided which corporations to audit and began checking Berkshire's records to see if it had violated the double-deduction rule.

During pretrial questioning, Powell said that dollars deposited into a bank account are like kernels of corn put into a silo. Once combined, he said, there's no difference between them regardless of their origin.

Yet Powell said he traced much of the money that Berkshire had borrowed to purchases of dividend-paying stock such as Coca-Cola, Time Warner and US Airways.

To keep the "path" of the money going, Powell said, he would arbitrarily allocate it to certain stock purchases by Berkshire. Under questioning from Berkshire attorney David Brown, Powell said the money used for the stock purchases could just as easily have come from other sources.

Berkshire made other investments as well, including some that paid small rates of interest. Powell said it was not logical for Berkshire to borrow money at, say, 10 percent interest and buy investments that paid only 6 percent.

As a result, he said, it was logical to assume that Berkshire's intent was to buy stocks that would pay dividends and increase in value at rates higher than the interest Berkshire was paying for the borrowed money.

Gerald Leedom, an attorney for the U.S. Department of Justice in Washington, D.C., argued that simply borrowing money for National Indemnity wouldn't have met Berkshire's goal of building up the company's capital. Rather, the money had to be invested in stocks that would bring high returns, including dividends.

Once the money is borrowed, Leedom said, "it's looking for a home in an investment that will produce a higher return."

Berkshire attorney Brown several times asked Powell whether the money for specific transactions could just as likely have come from non-borrowed sources, and Powell said that it could have.

After citing a chain of three such transactions, Brown said the chances that Powell had correctly traced the loan proceeds had "an eight-to-one chance of being wrong."

"That's one way to look at it," Powell said.

Buffett, chairman and chief executive of Berkshire, testified early in the trial.

He said he does not like to borrow money because of the interest costs involved, but if the terms of raising money are favorable and the money can bring a higher return than the cost of interest, he is willing to take on debt.

In this case, Buffett said, he had borrowed to build up the financial strength of National Indemnity so that it could become a strong competitor in the reinsurance industry, taking over huge amounts of property and casualty risk from other insurers.

"We wanted to be supremely capitalized," he said, not just adequately capitalized.

The borrowed money, like other sources of cash at Berkshire, was invested as fully as possible. "We don't put it under the mattress," he said.

Judge Strom said that from the testimony he had heard and the legal cases cited, the key factor is whether buying dividend-paying stock is the dominant reason for borrowing the money.

He asked the attorneys to calculate how much Berkshire would receive.

-- Steve Jordon