- 115 -
the investment." Id. at 847.
In these other cases there were no deliberately-contrived
circles of offsetting payments, established solely for tax
purposes, such as those here. In the cases at hand, the
deliberate circular matching obligations, the lack of arm's-
length dealing, the lack of purposive activity by the
partnerships, Fred's untrammeled exercise of the ability to
terminate the transactions as he deemed fit, the lack of
documentation, and the overriding tax motivations of the
transactions at issue all combine to "take this case well beyond
an unadorned availability of rental payments to cover note
obligations." Waters v. Commissioner, 978 F.2d 1310, 1317 (2d
Cir. 1992), affg. T.C. Memo. 1991-462.
In sum, the financial structure of the employee leasing
partnerships before us presents only an image of genuine lending,
borrowing, and investment transactions. The transactions were
shams. They consisted of prearranged circular offsetting deals,
which, coupled with the termination agreements and Bucci's
bankruptcy, effectively precluded any claim that they possessed
economic substance.
c. Arm's-Length Negotiations
Arm's-length bargaining is an obvious characteristic of
commercially valid transactions. There is no evidence of arm's-
length negotiations in any of the employee leasing arrangements
at issue. Instead, the participants let Fred and Bruce arrange
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