- 14 -
fact that had led the Commissioner to settle on such favorable
terms. See Nicholson v. Commissioner, 60 F.3d at 1024.
Petitioners have adduced no evidence in the instant case of
whether Elmco did, or could, prepay its loan from GCC. Finally,
Nicholson, unlike the instant case, did not involve a broad
indemnity clause that protected the taxpayer from loss.
In short, we see no reason not to continue to adhere to our
position that the economic reality of a transaction controls.
See Levien v. Commissioner, 103 T.C. at 128-129. We decide the
substance of a transaction by looking at all the material facts.
See id. As we stated in Levien:
We have previously addressed a similar argument [that
the worst-case scenario should apply] in Wag-A-Bag,
Inc. v. Commissioner, T.C. Memo. 1992-581, in which we
determined that 'whichever standard is used, the
ultimate decision rests upon the substance of the
transaction in light of all the facts and
circumstances.' We continue to hold to the view--
expressed in Wag-A-Bag--that, under section 465(b)(4),
economic reality should be the touchstone of the
analysis. [Id. at 128-129.]
We scrutinize the economic reality of leasing activities by
focusing in particular upon: The relationships between the
parties; whether the underlying debt is nonrecourse; the presence
of offsetting payments and bookkeeping entries; the circularity
of the transaction; and the presence of any payment guarantees or
indemnities. See id. at 125-126. "Neither the form chosen, the
labels used, nor a single feature of the transaction generally
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