Investment Research Associates - Page 420




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          claim that the transactions had economic substance and were not              
          shams for Federal tax purposes.                                              
               No evidence was introduced by IRA to corroborate the                    
          financial substance of the equipment leasing transactions, such              
          as a record of rental payments received by IRA, payments made by             
          IRA on the long-term notes, payments received by IRA on                      
          succeeding leases, and final disposition of the equipment.                   
               In none of the equipment leasing deals entered into by IRA              
          did the cash-flow enable it to make a profit, absent residual                
          value in the equipment at the time the original leases expired.              
          For each of the equipment leasing deals which are at issue, there            
          was no residual value for the equipment at the end of each                   
          leaseback arrangement.                                                       
          C.   General Facts Relating to Invalid Indebtedness and Financing            
          Circularity                                                                  
               The equipment involved in the sale and leaseback                        
          transactions was subject at the time of such transactions to                 
          liens held by various lending institutions which had financed the            
          purchase of the equipment by the relevant entity and was subject             
          to the lease of such equipment to various end users.  The                    
          transactions generally took the form of a sale of equipment by               
          the leasing company to IRA, or to an intermediary company,                   
          subject to the preexisting liens and leases, after which the                 
          investor or IRA then leased the equipment back to the seller, the            
          leasing company, for a period of 96 or 108 months.                           





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Last modified: May 25, 2011