Ernest I. Korchak - Page 5

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          (recyclers) to Ethynol Cogeneration, Inc. (ECI), for $1,520,000             
          each.  ECI paid for the recyclers with $481,000 cash and a 12-              
          year nonrecourse promissory note in the amount of $5,599,000,               
          which was secured by a lien on the four recyclers.                          
               ECI simultaneously resold the four recyclers to F&G                    
          Equipment Corp. (F&G) for $1,750,000 each.  F&G paid for the                
          recyclers with $553,000 cash and a 12-year promissory note in the           
          amount of $6,447,000, 80 percent of which was nonrecourse.  The             
          nonrecourse portion of the note was senior to the recourse                  
          portion, and the note was secured by a second lien on the four              
          recyclers.                                                                  
               F&G simultaneously leased the four recyclers to Madison, and           
          Madison simultaneously entered into a joint venture agreement               
          with PI and Resin Recyclers, Inc. (RRI), to place the recyclers             
          with end users.  Under the joint venture agreement, which was to            
          last 9-1/2 years, Madison received a fixed, monthly joint venture           
          fee equal to the monthly lease payment made to F&G.  The fixed              
          monthly joint venture fee also equaled the payments both F&G and            
          ECI were obligated to make under their respective promissory                


               9(...continued)                                                        
          substantially identical.  We shall refer to both Sentinel EPS and           
          Sentinel EPE Recyclers as “recyclers”.  See Cohen v.                        
          Commissioner, T.C. Memo. 2003-303; Barlow v. Commissioner, T.C.             
          Memo. 2000-339, affd. 301 F.3d 714 (6th Cir. 2002); Davenport               
          Recycling Associates v. Commissioner, T.C. Memo. 1998-347, affd.            
          220 F.3d 1255 (11th Cir. 2000); see also Gottsegen v.                       
          Commissioner, T.C. Memo. 1997-314 (involving both EPE and EPS               
          recyclers).                                                                 




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