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provided that all equipment was leased from Cilena, except for
four items which were owned by petitioner and Mr. Cotter in
proportion to their shares in the partnership. Aeternum
originally operated out of the facilities petitioner had leased
for Cilena. However, Aeternum’s operations soon required a
larger facility, and a separate facilities lease was entered into
with a third party in May of 1991. Petitioner and Mr. Cotter
shared in the maintenance of Aeternum’s financial books, but no
partnership returns were filed while Aeternum was in existence.6
On January 16, 1992, Cilena and Aeternum signed an equipment
leasing agreement. The agreement was applicable to “all rental
transactions between * * * [Cilena] and * * * [Aeternum] during
the period commencing on August 1, 1990 and concluding on
December 31, 1996.” Petitioner, petitioner’s brother Andrew West
(Dr. West), and petitioner’s cousin Bahadir Icel (Mr. Icel)
signed the lease on behalf of Cilena. Petitioner and Mr. Cotter
signed the lease agreement on behalf of Aeternum. The monthly
amount charged under the equipment lease was to be computed by
multiplying the rental value of the equipment by a percentage
which was equal to one-twelfth of the highest prevailing U.S.
annual prime interest rate plus one-twelfth percent. The lease
6A bankruptcy settlement agreement designated Mr. Cotter as
the “Tax Matters Partner” and required him to file Federal and
State income tax returns for Aeternum, but it was unclear at the
time of trial whether Mr. Cotter had actually filed the returns.
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