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prevent the lawsuit brought by Ingemi's widow, who was suing
Bucci and his companies, from affecting the tax shelters.
The pervasive formation and use of these "barrier" entities
in the employee leasing operations contributes to our conclusion
that these operations, as structured by Fred, reflected efforts
to avoid, rather than to embrace, economic reality.
A realistic review of the employee leasing transactions
under the factors set forth above shows that the transactions
were shams, lacking economic substance, existing only on paper,
mostly in the form of book entries. Respondent has properly
denied the losses that resulted from the partnerships' claimed
payments of compensation to Machise's employees and independent
contractors.
B. Lack of Profit Objective of the Employee Leasing
Partnerships
The foregoing conclusion that the operations of the
partnerships lacked economic substance is sufficient to justify
denial of the deductions claimed by the partnerships. Gardner v.
Commissioner, 954 F.2d 836, 839 (2d Cir. 1992), affg. per curiam
Fox v. Commissioner, T.C. Memo. 1988-570. Nevertheless, we look
at the lack of profit objective to provide further support for
our conclusion.
The deductions that produced the claimed partnership losses
at issue arose from the expenses of meeting the payroll costs of
Machise. Wages and salaries and other compensation paid to
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