Investment Research Associates - Page 457




                                       - 506 -                                         
               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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Last modified: May 25, 2011