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Hyannis, Massachusetts, manufactured and sold2 four Sentinel EPS3
recyclers to Ethynol Cogeneration, Inc. (ECI) for $1,520,000
each. The sale of the recyclers from PI to ECI was partially
financed with nonrecourse promissory notes. For each recycler,
ECI agreed to pay PI $112,750 in cash, with the remaining balance
of $1,407,250 financed through a 12-year nonrecourse promissory
note.
Simultaneously, ECI resold the recyclers to F & G Equipment
Corp. (F&G) for $1,750,000 per machine. For each machine, F&G
agreed to pay ECI $128,250 in cash, with the remaining balance of
$1,621,750 financed through a purportedly partial recourse
promissory note. The note was recourse to the extent of 20
percent of its face value. However, the recourse portion was
payable only after the nonrecourse portion was satisfied.
2 Terms such as sale and lease, as well as their derivatives,
are used for convenience only and do not imply that the
particular transaction was a sale or lease for Federal tax
purposes. Similarly, terms such as joint venture and agreement
are also used for convenience only and do not imply that the
particular arrangement was a joint venture or an agreement for
Federal tax purposes.
3 EPS stands for expanded polystyrene. The case of Provizer
v. Commissioner, T.C. Memo. 1992-177, affd. per curiam without
published opinion 996 F.2d 1216 (6th Cir. 1993), involved
Sentinel expanded polyethylene (EPE) recyclers. However, the EPS
recycler partnerships and the EPE recycler partnerships are
essentially identical. See Davenport Recycling Associates v.
Commissioner, T.C. Memo. 1998-347, affd. 220 F.3d 1255 (11th Cir.
2000); see also Ulanoff v. Commissioner, T.C. Memo. 1999-170
(same); Gottsegen v. Commissioner, T.C. Memo. 1997-314 (involving
both the EPE and EPS recyclers).
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