obvious focus of the promotional materials distributed to
petitioner was on the attendant tax benefits of the lease
program. The tax opinion petitioner received with the
promotional materials was twice as long as the prospectus itself
and specifically raised the likelihood of prospective Internal
Revenue Service (IRS) challenge and possible litigation in the
Tax Court. Furthermore, very little revenue was generated from
sales of sound recordings made from the subject master. Indeed,
petitioner’s share of the income from sales of albums and
cassettes made from the subject master in 1984 totaled only
$18.57. Nonetheless, petitioner claimed nearly $27,000 in
deductions and investment tax credits in 1984 relating to the
master lease transaction.
Reliance on an inflated value of the master recording is
another factor considered in determining whether the underlying
transaction has economic substance. Independent Elec. Supply,
Inc. v. Commissioner, 781 F.2d 724, 728 (9th Cir. 1986), affg.
T.C. Memo. 1984-472, cited with approval in Pasternak v.
Commissioner, supra at 900. Disparity between the prices of the
master recordings and their actual fair market values is yet
another factor in determining whether transactions are shams.
Hunt v. Commissioner, 938 F.2d 466, 472 (4th Cir. 1991), cited
with approval in Pasternak v. Commissioner, supra at 900.
Encore valued the subject master leased by petitioner at
$496,000 and subsequently provided petitioner with a 1-1/2-page
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