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With regard to the telecommunications equipment, petitioners
reported the following on their tax returns for the years in
issue:
1982 1983
Income $2,213 $411,564
Deduction
Depreciation 541,531 794,245
Interest 2,213 411,564
Losses 541,531 794,245
OPINION
I. At-Risk Issue
A. Introduction
These cases involve two equipment leasing transactions
entered into by petitioner and characterized by the parties as
the "computer equipment activity" and the "telecommunications
equipment activity" (together, the activities). Both activities
comprised similar elements: A leasing company purchased
equipment with funds borrowed from a bank. The leasing company
leased the equipment to an end-user. Rent payments to be
received from the end-user were assigned to the bank as security
for the loan. The leasing company then sold the equipment to a
middle company, which, in turn, sold the equipment to petitioner.
With regard to both of those sales, substantially all of the
purchase price was evidenced by a long-term note and the
equipment was acquired subject to both the lease to the end-user
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