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              
          year.                                                                       
               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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