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In 1981, Packaging Industries, Inc. (PI), manufactured and sold
six Sentinel expanded polyethylene (EPE) recyclers to ECI Corp.
for $5,886,000 ($981,000 each). ECI Corp., in turn, resold the
recyclers to F & G Corp. for $6,976,000 ($1,162,666 each). F & G
Corp. then leased the recyclers to Clearwater, 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 Clearwater transaction. 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
based on the quality and amount of recycled scrap.
In 1981, EI acquired a 43.313-percent limited partnership
interest in Clearwater, Wilson acquired a 9.581-percent interest
in EI, and Sorey acquired a 3.194-percent interest in EI. As a
result of passthrough from Clearwater and EI, Wilson deducted an
operating loss in the amount of $26,830 and claimed investment
3(...continued)
Provizers, facts regarding the expert opinions, and other matters
that we consider of minimal significance. Although the parties
did not stipulate our findings regarding the expert opinions,
they stipulated our ultimate finding of fact concerning the fair
market value of the recyclers during 1981.
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