- 507 -
benefits. However, the presence of a business purpose does not
necessarily confirm recognition for Federal tax purposes if
objective indicia of economic substance indicating a realistic
potential for economic profit are not manifest. See Larsen v.
Commissioner, 89 T.C. 1229 (1987), affd. in part, revd. in part
909 F.2d 1360 (9th Cir. 1990). IRA's transactions will not
constitute a sham, factual or legal, as long as IRA can
demonstrate a legitimate nontax motive for entering into the
transactions and a reasonable opportunity for profit, exclusive
of tax benefits. This, of course, assumes the transactions were
something other than merely the affixation of various signatures
to forms, facts not demonstrated by IRA in view of all the
circumstances.
We think IRA has failed in its burden of proof. Considering
the economics of the transactions, we note that none of the
transactions had the requisite economic substance, unless the
transactions reasonably could be expected to return cash to IRA
in an amount in excess of that invested. In this regard, the
sale leaseback transaction could return cash to IRA from only two
sources. First, the amount of rent due to IRA each month under
its lease with the specific seller/lessee, e.g., O.P.M., could
exceed the amount of the cash paid at closing, the payments made
on the short term notes, plus the monthly payments required under
its long-term notes to the payee thereunder by an amount
Page: Previous 497 498 499 500 501 502 503 504 505 506 507 508 509 510 511 512 513 514 515 516 NextLast modified: May 25, 2011