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most significant factor is the characterization of the parties to
the transaction in their written agreement. Both petitioner and
the "purchasers" of the properties in question had a significant
interest in that characterization. The "sale" characterization
used in the documents for underlying transactions gave the
purchasers ownership which was potentially important for purposes
of the purchasers' deduction of interest and real estate taxes.
If petitioner prevails, those tax benefits, and possibly others,
would be jeopardized. In similar situations, we have required
taxpayers who attempt to recharacterize the written terms of a
transaction to adduce strong proof that the written contract was
without economic substance. North American Rayon Corp. v.
Commissioner, 12 F.3d 583 (6th Cir. 1993), affg. T.C. Memo. 1992-
610; Commissioner v. Danielson, 378 F.2d 771, 775 (3d Cir. 1967),
vacating and remanding 44 T.C. 549 (1965); Ullman v.
Commissioner, 264 F.2d 305, 308 (2d Cir. 1959), affg. 29 T.C. 129
(1957). Petitioner has failed to produce such strong proof.
Based on all of the above facts and circumstances, we hold that
the cluster home or condominium transactions were sales. In
light of this, petitioner had no depreciable interest in the
cluster homes or condominiums, and respondent properly disallowed
deductions for depreciation. Weiss v. Wiener, 279 U.S. 333
(1929); Taube v. Commissioner, 88 T.C. 464 (1987). Petitioner is
also taxable on the net gain on the sales transactions. See
supra notes 2, 13.
Section 6661 Addition to Tax
Section 6661 provides for an addition to tax for the
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