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years. At the time the notices of deficiency were issued,
respondent believed the transaction was a sale of the premises,
liquor license, and equipment by the Guaderramas back to
Benavidez that resulted in capital gains. After trial, however,
respondent in his brief took the position that Benavidez did not
relinquish ownership of the property and liquor license to the
Guaderramas, and therefore the transaction was not a sale, but
rather a financing arrangement between petitioners.
OPINION
We must decide whether the parties’ transaction was in
substance a “sale-leaseback”3 or a financing arrangement. The
Guaderramas contend that the transaction was a lease, while both
respondent and Benavidez contend that the transaction was a
financing arrangement.
I. Standard of Proof
Before we analyze the transaction, we must first determine
whether Benavidez or respondent should be allowed to ignore the
3 The transaction could not be a true sale-leaseback because
petitioner Lauro G. Guaderrama (Guaderrama) constructed a
building on the land that was transferred by Benavidez, and
therefore Severo’s was not “sold” to Guaderrama and then
subsequently leased back to Benavidez. However, when taking into
account the transfer by Benavidez of the land, liquor license,
trade name and telephone number, all of which petitioners Lauro
G. and Gayle W. (the Guaderramas) argue were subsequently
“leased” back to Benavidez, the form of this transaction is
analytically similar to a sale-leaseback. Thus, it is
appropriate to consider those factors traditionally associated
with sale-leaseback transactions for purposes of determining the
proper characterization of this transaction.
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