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Petitioners filed joint Federal income tax returns for 1985
and 1986. On their returns, petitioners claimed deductions of
loss and investment interest expense (the claimed deductions)
relating to Hambrose Leasing 1985-3 (the partnership) in the
following amounts:
Year Loss Investment Interest Expense
1985 $13,903 $1,082
1986 21,538 2,190
This case involves two sale-leaseback transactions among the
following entities: CIS Leasing Corp. (CIS), a New York
corporation with principal offices in Syracuse, New York;
Comdisco, Inc. (Comdisco), a Delaware corporation with principal
offices in Rosemont, Illinois; Charterhouse Leasing Associates
Limited Partnership (Charterhouse), a Connecticut limited
partnership; Hambrose Reserve Ltd. (Hambrose), a Delaware
corporation; M & J Holding Corp. (M & J), a Delaware corporation
that was the sole shareholder of Hambrose and the general partner
of Charterhouse; and Hambrose Leasing 1985-3 (the partnership), a
partnership engaged in the equipment leasing business.
The Sale-Leaseback Transactions
The transactions can be described in general terms as
follows: CIS and Comdisco purchased IBM computer equipment with
a specified amount of borrowed funds. CIS and Comdisco then
leased the computer equipment to various end users. CIS and
Comdisco then sold the computer equipment to Charterhouse,
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