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sufficient to provide a cash-flow in excess of IRA's investment.
However, in the subject transactions, the rent payments to be
received by IRA never equaled the payments made and due so as to
allow IRA even to recover its total investment. Second, IRA was
purportedly entitled to any proceeds from the sale or re-lease of
the equipment, at the end of its leases with each lessee, less
expenses of such sale or re-lease and less payment, generally, of
a 10-percent remarketing fee. No expert testimony was presented
by IRA regarding residual value. In fact, there was no specific
evidence (such as appraisals or projections) of the value of the
equipment presented by IRA at any time for any of the
transactions at issue, other than the general statements made by
IRA's witness Mallin regarding intent to profit.
In Friendship Dairies, Inc. v. Commissioner, 90 T.C. 1054
(1988), the Court discussed leasing transactions similar to those
involved here. O.P.M., the taxpayer, and an intermediary were
involved in the pro forma equipment transaction. Remarketing
agreements, limited recourse promissory notes, and the
circularity of payments with minimal cash-flow to the lessor were
present. Mallin promoted the deal. Like the transactions at
issue here, tax benefits were clearly the driving force of the
deal. Residual value was a critical factor in determining that
economic substance existed.
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