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Indeed, Fred and Bruce promised them tax losses, but the only
loss they incurred was the economic loss of their cash payments,
which were absorbed by fees and other payments to BBPA and
Machise.
Fred structured the employee leasing transactions so that
the lessor partnerships would be on the cash basis. Under the
employee leasing agreements, the partnerships could not seek
income in the form of "rents" for their leased employees until
after the year in which the partnerships allegedly furnished and
paid those employees. Thus the transactions were structured so
that the partnerships were guaranteed a loss, in every instance,
in the first year of operation. Their partners used their pro
rata shares of that loss to reduce, or "shelter", unrelated
taxable income. This sheltering of income is the only
justification for establishing a structure in which the investors
would automatically be deprived of any income in the first year
of operation. As we have said:
Petitioners argue that under the * * *
transaction, there was a reasonable prospect for a
profit. This argument conveniently overlooks the fact
that in the critical year--the loss year--there was no
prospect for any profit, for any other result would
have destroyed the raison d'etre for entering into the
* * * transaction in the first place. * * *
Glass v. Commissioner, 87 T.C. 1087, 1174 (1986), affd. sub nom.
Herrington v. Commissioner, 854 F.2d 755 (5th Cir. 1988), affd.
sub nom. Yosha v. Commissioner, 861 F.2d 494 (7th Cir. 1988),
affd. sub nom. Ratliff v. Commissioner, 865 F.2d 97 (6th Cir.
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