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At the time the "leases" in dispute here were entered into,
UCI intended to keep the equipment permanently. Northcutt
testified at trial: "United Circuits was buying some equipment
and we [Jump and Northcutt] discussed the possibility of a lease
against depreciating it". (Emphasis added.) The documents
transferring the equipment either had no provision for the return
of the equipment to the "lessors" at the end of the required
payments or the agreements offered a nominal buy out. Taking
into account all of the relevant facts and circumstances,
including the intent of the parties to the agreement at the time
of the agreements, we conclude that agreements have the legal
effect of a contract for sale. Benton is distinguishable and
does not represent authority for petitioner's position.
Petitioner has failed to present any authority that supports
petitioner's position on its tax returns. Under either the
economic test of the revenue ruling or the intent test of Benton
applied to the facts, the transactions were sales and not leases.
Accordingly, petitioner cannot rely on the substantial authority
exception to the substantial understatement penalty to avoid
liability.
Petitioner also argues that it reasonably and in good faith
relied on Northcutt, its accountant, to prepare its returns and,
therefore, it should not be liable for the accuracy related
penalty. The reasonable cause and good faith exception in
section 6664(c) applies to both the substantial understatement
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