- 504 -
the parties, rather than merely the form they have taken. See
Grodt & McKay Realty Inc. v. Commissioner, 77 T.C. 1221 (1981);
see also Torres v. Commissioner, 88 T.C. 702 (1987).
IRA contends that each of the leasing transactions had a
business purpose and economic substance apart from potential tax
benefits. In advancing this contention, it relies on (1)
Mallin's testimony regarding the residual value of the equipment
in these transactions and (2) Uhl's testimony regarding Funding
Systems' intent to enforce the long-term promissory notes that
IRA and/or Cedilla Invest. issued. Specifically, with respect to
the question of whether these transactions had economic
substance, it is acknowledged that the equipment's residual value
is crucial because there was insufficient excess cash-flow from
the equipment during the lease terms to enable IRA and/or Cedilla
Invest. to make a profit. IRA further asserts that the long-term
notes issued in connection with these leasing transactions were
valid indebtedness.
Respondent, on the other hand, contends that the
transactions were shams that were entered into by IRA and/or
Cedilla Invest. purely for tax benefits. Respondent, citing HGA
Trust v. Commissioner, supra, also maintains that the long-term
notes IRA and/or Cedilla Invest. issued were not valid
indebtedness because neither would likely ever be required to
make payments in view of the deferral provisions in each note.
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