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The rent to be received by Cedilla Invest. with respect to
this transaction was less than the amount due on the note
including principal and interest and the initial cash investment.
Therefore, the only manner in which IRA could profit would be a
residual value of the equipment that would exceed the cumulative
negative cash-flow and since the expected residual value of the
equipment would be minimal at the end of the end-user lease,
there was little likelihood that IRA would ever recover its
investment or realize a profit.
It is questionable whether IRA ever received the benefits
and burdens of ownership when it consummated the agreement with
Pluto, an entity of Mallin. At most, IRA obtained the future
interest or right to participate in the residual value of the
equipment, rather than a present depreciable interest therein.
This was so because Atlantic had no legal title to the equipment,
only the right to obtain title at a cost of 2 percent of the
original purchase price. Future interests are not currently
depreciable. See Coleman v. Commissioner, 87 T.C. 178 (1986),
affd. without published opinion 833 F.2d 303 (3d Cir. 1987).
That case involved Atlantic Computer Leasing and a lease similar
to those herein. We held that the taxpayer did not have a
depreciable interest in the equipment because the leasing
company, Atlantic, did not have a depreciable interest.
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