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purchase price for its cattle did not reasonably approximate
those “cattle’s” fair market value.
F. Validity of the Partnerships’ Notes
In deciding the extent to which a nonrecourse note has
economic substance, a number of cases have relied heavily on
whether the fair market value of the property acquired with the
note was within a reasonable range of its stated purchase price.
See Estate of Franklin v. Commissioner, 544 F.2d 1045 (9th Cir.
1976), affg. 64 T.C. 752 (1975); Hager v. Commissioner, 76 T.C.
759 (1981); see also Hilton v. Commissioner, 74 T.C. 305, 363
(1980), affd. 671 F.2d 316 (9th Cir. 1982); cf. Frank Lyon Co. v.
United States, 435 U.S. 561 (1978) (where, among other things,
the buyer-lessor in a sale-leaseback transaction was personally
liable on the mortgage). As the Court of Appeals for the Ninth
Circuit in Estate of Franklin v. Commissioner, supra at 1048,
stated, in pertinent part:
An acquisition * * * if at a price approximately equal
to the fair market value of the property under ordinary
circumstances would rather quickly yield an equity in
the property which the purchaser could not prudently
abandon. This is the stuff of substance. It meshes
with the form of the transaction and constitutes a
sale.
No such meshing occurs when the purchase price
exceeds a demonstrably reasonable estimate of the fair
market value. Payments on the principal of the
36(...continued)
typically “sold” bulls to various TBS partnerships for stated
prices of around $3,500 per bull.
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