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leases will not be taken into consideration
in deciding whether the lease transactions
are entitled to lease treatment. Held,
further, the lease transactions are entitled
to be treated as leases.
David D. Aughtry and Vivian D. Hoard, for petitioners.
Mark S. Mesler, for respondent.
WELLS, Judge: Respondent determined a deficiency in
petitioners' 1993 Federal income taxes of $977,267 and a section
6662 accuracy-related penalty of $195,453.
Unless otherwise indicated all section references are to the
Internal Revenue Code in effect for the year in issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure.
The issues we must decide in the instant case are: (1)
Whether section 7701(h)(1) precludes consideration of a "terminal
rental adjustment clause" (TRAC)1 contained in certain agreements
1 Sec. 7701(h)(3) provides:
(3) Terminal rental adjustment clause
defined.--
(A) In general.--For purposes of this
subsection, the term "terminal rental adjustment
clause" means a provision of an agreement which
permits or requires the rental price to be
adjusted upward or downward by reference to the
amount realized by the lessor under the agreement
(continued...)
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