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Issue 1. The Underlying Deficiency for 1981
Petitioners contend that they are not liable for the
underlying deficiency for 1981 with respect to their investment
in Clearwater. They assert that petitioner's investment in
Clearwater and petitioner's professed belief that the Clearwater
transactions were economically sound were not dependent on the
valuation of the Sentinel EPE recyclers. They contend that
because of the offsetting structure of the transaction (under
which Clearwater did not purchase the equipment but leased it,
and under which Clearwater licensed the equipment to FMEC Corp.
in exchange for a guaranteed annual royalty that was sufficient
to pay the annual rent required of Clearwater) the gross
overvaluation of the EPE recyclers was immaterial. They
conclude, therefore, that petitioner's investment in Clearwater
was not an economic sham.
Petitioners also assert that given information available at
the time of the transactions, i.e., without the benefit of
hindsight, the Clearwater transactions were not an economic sham.
As already mentioned, petitioners have stipulated
substantially the same facts concerning the underlying
transactions as we found in Provizer v. Commissioner, supra.
Further, all of petitioners' contentions were addressed in
Provizer, the test case for the Plastics Recycling group of
cases. Specifically, we considered whether, without the benefit
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