Derwyn J. Booker - Page 12

          attributable to the income from the investment claimed in a given           
          taxable year to offset taxes on income from other sources that              
               In the tax shelter line of cases, the Court of Appeals for             
          the Sixth Circuit has held that a transaction is a sham if it has           
          no practicable economic effects other than the creation of income           
          tax losses.  Pasternak v. Commissioner, supra; Illes v.                     
          Commissioner, supra.  The first prong of the Mahoney test                   
          requires an examination of the transaction, not the taxpayer.               
          Illes v. Commissioner, supra at 165.  A taxpayer’s alleged                  
          reasonable belief that his or her investment in a tax shelter had           
          economic substance does not preclude treatment of the transaction           
          as a sham.  Id.                                                             
               Thus, our first inquiry is whether the master recording                
          lease transaction entered into between Encore and petitioner had            
          economic substance or whether it was a sham.  Several factors               
          have been used to determine whether a transaction has economic              
          substance.  One such factor is evidence that the transaction was            
          marketed as a tax shelter generating little revenue.  See                   
          Pasternak v. Commissioner, supra at 901.  Encore’s 24-page                  
          prospectus focuses primarily on the tax advantages of investing             
          in the Encore program and contains only a brief description of              
          the recording industry.  The prospectus does not describe the               
          specific master recordings Encore intended to lease, or the                 
          nontax, economic profitability of Encore’s leasing program.  The            

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