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turn, resold the recyclers to F&G Equipment Corp. (F&G Corp.) for
$1,162,666 each. F&G Corp. leased the recyclers to the
Clearwater Group partnership, which then licensed the recyclers
to First Massachusetts Equipment Corp. (FMEC) which sublicensed
them back to PI. PI allegedly sublicensed the recyclers to
entities (the end-users), which would use them to recycle plastic
scrap. The sublicense agreements provided that the end-users
would transfer to PI 100 percent of the recycled scrap in
exchange for payment from FMEC based on the quality and amount of
recycled scrap. All of the foregoing transactions were executed
simultaneously.
The sale of the recyclers from PI to ECI was financed with
nonrecourse notes. Approximately 7 percent of the sales price of
the recyclers sold by ECI to F&G Corp. was paid in cash, and the
remainder was financed through notes. The notes provided that 10
percent of the amount thereof was recourse but that the recourse
portion was due only after the nonrecourse portion had been paid
in full. All of the monthly payments required among the entities
in the above transactions offset each other. In Provizer v.
Commissioner, supra, we found that the market value of a Sentinel
Recycler in 1981 did not exceed $50,000 and that the nuts and
bolts, or manufacturing, cost was $18,000.
The Provizers were limited partners in a partnership named
Clearwater Group (Clearwater) and the general partner was Samuel
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