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the purchase and sale of the debt instruments at issue herein
were prearranged and predetermined, devoid of economic substance,
and lacking in economic reality. Alternatively, respondent
asserted, ACM's activities must be disregarded under the step
transaction doctrine, ACM's activities were not engaged in for
profit within the meaning of section 183, and the sale of the
subject debt instruments did not satisfy the formal requirements
for a contingent payment sale under section 15a.453-1(c)(1),
Temporary Income Tax Regs., 46 Fed. Reg. 10711 (Feb. 4, 1981).
Following respondent's concession of a number of these
alternative theories, the parties ask the Court to decide the
following issues:
(1) Whether respondent's adjustments to items of income and
loss reported by ACM on the subject transactions should be
sustained on the ground that the transactions lacked economic
substance. We hold they should.
(2) Whether, as alleged by respondent in her amendment to
answer, the foreign partner should be treated as a lender for
Federal income tax purposes. In view of our disposition of the
first issue, we do not decide this issue. Consistent with the
FPAA, as well as the manner in which ACM reported the foreign
partner on its returns, we assume that the foreign partner is not
a lender.
(3) Whether ACM's allocation of taxable gain on the sale
had substantial economic effect or was otherwise in accordance
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