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entries. These transactions were unwound in the same way. None
of these transactions were accompanied by transfers of cash, the
drawing of checks, or the issuance of notes.
Additionally, the termination agreements often called for
assignments of notes in order to carry out their provisions, but
often no such assignments were made.
In circumstances such as these, when the validity of
financial transactions is called into serious question, reliance
upon bookkeeping entries will not suffice.
e. Reasonableness of Income Projections
We have examined the reasonableness of projections of income
expected to emanate from a transaction as a means of evaluating
its economic substance. See, e.g., Rice's Toyota World, Inc. v.
Commissioner, 81 T.C. 184, 204-207 (1983), affd. in part, revd.
in part, and remanded 752 F.2d 89 (4th Cir. 1985). Here,
petitioners insist that the partnerships' contemplated gross
profits, in terms of 15 or 20 percent "overrides" and 10 percent
late fees, were reasonable and consistent with contemporary
standards in the leasing industry. Petitioners further point out
that some of the payments, including compensation fees and late
fees, were reported as taxable income by the partnerships.
Petitioners’ contentions that the transactions had economic
substance, in the form of actual earnings that resulted in
taxable income in the later years of the partnerships, are
without merit. The partners only lost money on these deals.
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