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sum amount created such a hardship to petitioners' expansion
plans. It appears more likely that it was just another avenue
for the Spanish investors to receive corporate distributions.
Petitioners also argue that there was economic substance to
the transactions because Manver gave up the right to substantial
pay-as-you-go royalties for several years and instead received
cash and promissory notes. Petitioners point out that Manver
agreed to accept a lesser sum in exchange for receiving the
payments up front. The difference in the amounts was determined
by petitioners at the time of the transactions and represented
the discount on the total payments, if made over time, to their
present value. The purpose of discounting money to its present
value is to equalize the current value with the future value.
Petitioners imply that there was a disadvantage to the up-front
payment because it partially consisted of promissory notes. The
Spanish investors, however, owed the notes to the Spanish
investors and therefore controlled the risk of loss. Any
disadvantage to Manver is illusory.
The circular transfer of money through related parties to
create the illusion of payment is an indication of sham
transactions. Karme v. Commissioner, 73 T.C. at 1186-1187. In
the instant cases, enormous circular money movements between
entities controlled by the Spanish investors occurred
approximately every 183 days so that the interest on the payments
would qualify for the exemption on withholding tax. In Monahan
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