Albert R. and Phyllis F. Dworkin - Page 6

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                  In Provizer v. Commissioner, supra, we examined the                                      
            Clearwater transaction.  In the Clearwater transaction, PI sold                                
            six EPE recyclers to ECI Corp. for $981,000 each, which in turn                                
            resold the recyclers to F & G Corp. for $1,162,666 each.  F & G                                
            leased the recyclers to a limited partnership, Clearwater, which                               
            licensed them to FMEC, which sublicensed them to PI.  The                                      
            transaction involved herein differs in two respects:  (1) Seven                                
            Sentinel EPE recyclers were sold and leased rather than six; and                               
            (2) Northeast, rather than Clearwater, leased the recyclers from                               
            F & G and then licensed them to FMEC.  Northeast is thus like                                  
            Clearwater, occupying the same link in the transactional chain.                                
            In addition, the Sentinel EPE recyclers considered in this case                                
            are the same type of machines considered in the Provizer case.                                 
            The fair market value of a Sentinel EPE recycler in 1981 was not                               
            in excess of $50,000.                                                                          
                  PI allegedly sublicensed the recyclers to entities that                                  
            would use them to recycle plastic scrap.  The sublicense                                       
            agreements provided that the end-users would transfer to PI 100                                
            percent of the recycled scrap in exchange for a payment from FMEC                              
            Corp. based on the quality and amount of recycled scrap.                                       
                  In 1981, petitioner acquired a 3.908-percent limited                                     
            partnership interest in Northeast in exchange for his investment                               
            of $37,500.  As a result of the passthrough from Northeast,                                    
            petitioners deducted on their 1981 Federal income tax return an                                
            operating loss in the amount of $30,510 and claimed investment                                 

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