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During 1981, Albert R. Dworkin (petitioner) was a semi-
retired certified public accountant (C.P.A.) and an investor in
real estate and other entities. His spouse, petitioner Phyllis
F. Dworkin, was not employed outside the home during 1981. On
their 1981 Federal income tax return, petitioners reported gross
income from interest, dividends, business, capital gains, and
other sources in excess of $196,500. Consequently, in the
absence of significant deductions or credits, they were subject
to payment of Federal income taxes in substantial amounts.
The facts of the underlying transaction in this case are
substantially identical to those in Provizer v. Commissioner,
supra, and may be summarized as follows. In 1981, Packaging
Industries, Inc. (PI), manufactured and sold seven Sentinel
expanded polyethylene (EPE) recyclers to ECI Corp. for $6,867,000
($981,000 each), of which $530,000 was paid in cash. ECI Corp.,
in turn, resold the recyclers to F & G Corp. for $8,138,667
($1,162,666 each), of which $615,000 was paid in cash. F & G
Corp. then leased the recyclers to Northeast Resource Recovery
Associates (Northeast), a limited partnership, which licensed the
recyclers to FMEC Corp., which sublicensed them back to PI. All
of the monthly payments required among the entities in the above
transactions offset each other. These transactions were done
simultaneously. We refer to these transactions collectively as
the Northeast transaction.
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