Carl J.D. Bauman and Margaret A. Bauman - Page 16

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          consulting various professionals and that such investment was               
          undertaken with the intent of making a profit.  Accordingly,                
          petitioners conclude, such consultation and reliance preclude a             
          finding that they were negligent.                                           
               Respondent rejects petitioners’ arguments as self-serving              
          and contends that the sole purpose underlying ERL’s formation was           
          to enable the limited partners to claim tax benefits based on the           
          pass-through of enormous losses.  As a result, respondent                   
          maintains, ERL’s lease transaction was devoid of economic                   
          substance and, as such, must be disregarded for Federal income              
          tax purposes.  Respondent further maintains that ERL was not                
          engaged in an activity for profit and that petitioners have                 
          failed to substantiate various ERL deductions.  Respondent also             
          maintains that certain additions to tax are appropriate for each            
          year at issue.                                                              
          Issues 1 & 2.  Economic Substance & Bona Fide Indebtedness                  
               Numerous cases hold that transactions which are devoid of              
          economic substance are to be disregarded for Federal tax                    
          purposes.  See Larsen v. United States, 89 T.C. 1229, 1252                  
          (1987), affd. in part and revd. in part sub nom.; Casebeer v.               
          Commissioner, 909 F.2d 1360 (9th Cir. 1990); Rose v.                        
          Commissioner, 88 T.C. 386, 410 (1987), affd. 868 F.2d 851 (6th              
          Cir. 1989).  In James v. Commissioner, 87 T.C. 905, 918 (1986),             
          affd. 899 F.2d 905 (10th Cir. 1990), we summarized the holdings             
          of such cases and explained that a transaction will not be                  

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