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conducted in the three above-mentioned cases with respect to
deficiencies in and additions to tax resulting from participation
in Encore. In each case, we held in favor of respondent on all
issues; each case was affirmed by the Court of Appeals for the
Ninth Circuit.
Petitioners were among a large number of persons nationwide
who invested in the Encore master recording lease program and who
claimed credits, deductions, and losses with respect thereto that
were disallowed by respondent. In order to resolve common
issues, a test case was selected among the cases in which persons
whose credits, deductions, and losses had been disallowed by
respondent had petitioned this Court for a redetermination of
that disallowance. We rendered an opinion in the test case, Wolf
v. Commissioner, supra, and held that the Encore lease
transaction was a sham entered into without the intent to make a
profit in which tax considerations were paramount.
More specifically, in Wolf v. Commissioner, supra, this
Court held that: (1) The taxpayers were not entitled to claimed
deductions and investment tax credits related to their
participation in Encore; (2) the taxpayers’ underpayments for the
years at issue were due to negligence or intentional disregard of
rules and regulations, and as a result, were liable for the
1(...continued)
without published opinion 5 F.3d 536 (9th Cir. 1993); Garcia v.
Commissioner, T.C. Memo. 1991-451, affd. without published
opinion 5 F.3d 536 (9th Cir. 1993).
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