Ronald and Barbara Kimmich - Page 14




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          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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