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Petitioners argue that the court's statement supports a
"clear inference" that the Court of Appeals rejected the economic
reality test in favor of the worst case scenario test. We
believe that petitioners' contention is without merit. We read
Nicholson v. Commissioner, supra, only to mean that the Court of
Appeals has reserved for another day any decision on which of the
tests it will adopt.
Petitioners also argue:
In Nicholson Jr., the court placed the burden on
petitioner, adopted arguendo the economic reality test,
and required a showing of abuse of discretion.
Notwithstanding the fact that the court drew every
inference favorable to respondent, it imposed an
extraordinary sanction on the respondent and required
respondent to pay the taxpayer's fees.
Petitioner asserts that respondent's defeat on the attorney's
fees issue in Nicholson means "certain defeat" for respondent in
the instant case. Respondent, however, contends that petitioners
fail to account, sufficiently, for the significant factual
distinctions between Nicholson and the instant case. We agree
with respondent.
In Nicholson, Equipment Leasing Exchange, Inc. (ELEX)
purchased computer equipment from a third party and financed it
through an unrelated bank. ELEX then leased the equipment to a
local school. As a condition of its nonrecourse loans, ELEX
granted the bank a security interest in both the equipment and
the lease. Later in the year, ELEX sold the equipment and
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