- 109 -
burdens and benefits of owning the equipment.
In sum, although RD Leasing had no realistic hope of realizing
a profit on the investment, the tax benefits generated were more
than sufficient to cover RD Leasing’s potential losses. Looking to
the substance of the transaction, we conclude that RD Leasing “did
not purchase or lease a computer, but rather, paid a fee * * * in
exchange for tax benefits.” Rice’s Toyota World, Inc. v.
Commissioner, 752 F.2d at 95 (citation omitted).
Our analysis leads us to conclude that RD Leasing did not
obtain sufficient benefits and burdens of ownership to be regarded
as the owner of the equipment for Federal income tax purposes.
Consequently, Norwest/NEFI is not entitled to claim depreciation
deductions for the equipment. The $15 million payment by RD
Leasing was simply the mechanism by which Norwest/NEFI became
involved in the transaction. And, in our opinion, the payment was
intended to secure tax benefits, not an interest in depreciable
property or in any economically viable project. Falsetti v.
Commissioner, 85 T.C. 332, 347 (1985).
Similarly, as discussed supra pp. 99-102, the seller financing
arrangement did not constitute bona fide debt; consequently,
Norwest/NEFI is not entitled to a deduction for interest.
D. Conclusion
In Higgins v. Smith, 308 U.S. at 476-477, the Supreme Court
stated:
There is no illusion about the payment of a tax exaction.
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