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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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