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the years at issue, IRA must prove that it had ownership of the
equipment in each transaction and that the long-term promissory
notes executed to finance the equipment transactions constituted
valid indebtedness. See Knetsch v. United States, 364 U.S. 361
(1960); Deegan v. Commissioner, 787 F.2d 825, 827 (2d Cir. 1986),
affg. T.C. Memo. 1985-219. The essence of a bona fide debt is an
unconditional and legally enforceable obligation for the payment
of money. See Linder v. Commissioner, 68 T.C. 792, 796 (1977).
This Court has held that the circular financing of computer
leasing transactions utilizing long-term promissory notes similar
or identical to the financing used in these transactions
constitutes invalid indebtedness. See Bussing v. Commissioner,
88 T.C. 449, supplemented by 89 T.C. 1050 (1987); HGA Cinema
Trust v. Commissioner, T.C. Memo. 1989-370 (a case involving a
Kanter-related computer leasing transaction with many of the same
individuals and entities involved herein), affd. 950 F.2d 1357
(7th Cir. 1991).
In addition to establishing that the long-term promissory
notes constituted bona fide indebtedness, IRA must prove that the
transactions had a business purpose and economic substance apart
from the claimed tax benefits. A transaction entered into solely
for the purpose of tax avoidance and which has no independent
economic substance to support it is a sham transaction and will
not be recognized for Federal income tax purposes. See Frank
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