- 28 -
machines. In view of the gross disparity in the prices of such
other machines and the Sentinel EPE recycler, petitioner's
purported valuation estimate was not reasonable.
Petitioner's testimony to the effect that the Sentinel EPE
recycler was worth $1,162,666, within the context of the
artificial Northeast transactions, is specious. Petitioner's
refusal to value the EPE recycler by itself and his insistence on
valuing it only as part of an "overall system" amounts to
considering the sham transaction as though it were a valid
transaction. In his calculations of value, petitioner allows an
investment credit of 20 percent of $1,162,666 and allows
depreciation on the basis of the same inflated value. He treats
the nonrecourse loans as though they were enforceable loans. In
his discussion, he ignores all possibility of competition from
users of machines purchased for $50,000 or less. In short,
petitioner's valuation of the "overall system" is based on an
artificial inflation of values in isolation from real-world
prices or influences. As the rapid collapse of the sham
transaction demonstrated, the EPE machines were grossly
overvalued by comparison with similar machinery.
4. The Carmagnola Reports
In support of the reasonableness of his valuation estimate,
petitioner submitted into evidence preliminary reports prepared
for respondent by Ernest D. Carmagnola (Carmagnola), the
president of Professional Plastic Associates. Carmagnola had
Page: Previous 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 NextLast modified: May 25, 2011