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and sold2 four Sentinel EPS3 recyclers to ECI Corp.
(ECI) for $1,520,000 each. ECI simultaneously resold
the recyclers to F&G Corp. (F&G) for $1,750,000 each.
F&G simultaneously leased the recyclers to Whitman.
Finally, Whitman simultaneously entered in a joint
venture with PI and Resin Recyclers Inc. (RRI) to
“exploit” the recyclers and place them with end-users.
Under this latter arrangement, PI was required to pay
Whitman a monthly joint venture fee.
For convenience, we refer to the series of
transactions between and among PI, ECI, F&G, Whitman,
and RRI as the Whitman transactions.
The sales of the Sentinel EPS recyclers from PI to
ECI were financed using 12-year nonrecourse notes. The
sales of the recyclers from ECI to F&G were financed
using 12-year “partial recourse” notes; however, the
recourse portion of the notes was payable only after
the first 80 percent of the notes, the nonrecourse
portion, was paid. No negotiations for the price of
the recyclers took place between, or among, PI, ECI and
F&G.
At the closing of the Whitman partnership, PI,
ECI, F&G, Whitman, and RRI entered into arrangements
whereby PI would pay a monthly joint venture fee to
Whitman, in the same amount that Whitman would pay as
monthly rent to F&G, in the same amount that F&G would
pay monthly on its note to ECI, in the same amount that
ECI would pay monthly on its note to PI. Further, in
connection with the closing of the Whitman partnership,
PI, ECI, F&G, Whitman, and RRI entered into offset
agreements providing that the foregoing payments were
bookkeeping entries only and were never in fact paid.
Also in connection with the closing of the Whitman
partnership, PI, ECI, F&G, Whitman, and RRI also
entered into cross-indemnification agreements. [Id.]
2Terms 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.
3EPS stands for expanded polystyrene. The case of
Provizer v. Commissioner, T.C. Memo. 1992-177, * * *
affd. per curiam without published opinion 996 F.2d
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