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In our view the equipment leasing investments constituted
nothing more than paper transactions designed solely to shelter
IRA's income. This is established primarily by IRA's failure to
produce any credible evidence that actual equipment purchases
took place, that the underlying equipment was ever in existence
or placed in service, or that there were ever any payments made
on the purported long-term promissory notes. The sham nature of
these transactions is revealed by IRA's failure to prepare or
produce a single equipment appraisal, residual or fair market
value opinion, income projection, economic forecast, or any other
type of financial analysis or similar supporting document in
connection with the transactions.
There are several reasons why respondent prevails on this
issue. First, IRA's transactions with the leasing companies, and
any intermediaries, lacked economic substance and business
purpose, and therefore must be disregarded for Federal income tax
purposes as sham transactions.
The analysis of IRA's transactions is essentially a two-
pronged inquiry. The first prong, the business purpose test,
addresses IRA's motives for entering into the transaction. See
Rice's Toyota World Inc. v. Commissioner, 81 T.C. at 192. The
second prong, the economic substance test, involves an objective
analysis of the transaction to determine whether or not it had
any realistic prospect of economic profit, exclusive of tax
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