Anthony J. and Claire L. Pace - Page 6

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          tax and business energy credits totaling $39,604.  The underlying           
          deficiencies in these cases result from respondent's disallowance           
          of petitioners' claimed operating losses and credits related to             
          Hyannis for taxable year 1981.                                              
               The underlying transaction in these cases was found by this            
          Court to be the initial Plastics Recycling transaction in                   
          Provizer v. Commissioner, T.C. Memo. 1992-177, and may be                   
          summarized as follows.  In 1981, Packaging Industries, Inc. (PI),           
          manufactured and sold six Sentinel expanded polyethylene (EPE)              
          recyclers to ECI Corp. for $5,400,000 ($900,000 each), of which             
          $340,000 was paid in cash.  ECI Corp., in turn, resold the                  
          recyclers to the Hyannis limited partnership for $6,400,000                 
          ($1,066,666 each), of which $440,000 was paid in cash.  Hyannis             
          then leased the recyclers to FMEC Corp., which subleased them               
          back to PI.  All of the monthly payments for nonrecourse notes,             
          leases, and licenses, which were required among the entities in             
          the above transactions, offset each other.  These transactions              
          were accomplished simultaneously.                                           
               After the Hyannis offering closed, the safe-harbor leasing             
          rules were enacted as part of the Economic Recovery Tax Act of              
          1981 (ERTA), Pub. L. 97-34, 95 Stat. 172.  The underlying                   
          transaction was restructured in a manner designed to take                   
          advantage of the safe-harbor provisions.  F & G Corp. became the            
          safe-harbor lessor and was interposed between ECI Corp. and the             
          primary leasing partnership, in this case Hyannis.  Subsequent              




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