Jeffrey I. and Roberta H. Stone - Page 7

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               Like Clearwater, each of the Partnerships herein was formed            
          to lease Sentinel EPE recyclers from F & G Corp. and license                
          those recyclers to FMEC Corp.3  The transactions of the                     
          Partnerships differ from the underlying transaction in the                  
          Provizer case in the following respects:  (1) The entity that               
          leased the machines from F & G Corp. and licensed them to FMEC              
          Corp.; (2) in the Northeast transaction, seven, rather than six,            
          machines were sold, leased, licensed, and sublicensed; and (3) in           
          the Hyannis transaction, F & G purchased the recyclers for                  
          $1,066,667 each.4  For convenience we refer to the series of                
          transactions among PI, ECI Corp., F & G Corp., each of the                  
          Partnerships, FMEC Corp., and PI as the Partnership transactions.           
          In addition to the Partnership transactions, a number of other              
          limited partnerships entered into transactions similar to the               
          Partnership transactions, also involving Sentinel EPE recyclers             

          3    As the Hyannis transaction was initially structured, Hyannis           
          purchased the recyclers from ECI Corp. and leased them to FMEC.             
          This transaction was restructured to take advantage of the safe-            
          harbor leasing rules of the Economic Recovery Tax Act of 1981               
          (ERTA), Pub. L. 97-34, 95 Stat. 172.  As in all subsequent                  
          Plastics Recycling programs, F & G Corp. was interposed between             
          ECI and the primary leasing partnership (in this case Hyannis).             
          4    There is no explanation in the record as to why the six                
          recyclers were sold to F & G Corp. for $6,400,000 in the Hyannis            
          transaction but later sold for $6,975,996 in subsequent Plastics            
          Recycling transactions.  We note that the Hyannis partnership               
          initially closed at the lower price prior to the enactment of the           
          safe-harbor legislation, and subsequently the arrangement was               
          modified in an attempt to take advantage of those rules by                  
          inserting F & G Corp. into the transaction.                                 

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