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10/31/93 short year and for 1994. Additionally, petitioners assert
that Andantech-US properly reported an interest expense deduction
under section 163(a) on its partnership tax returns for those
years. Ultimately, RD Leasing and EICI claimed these interest and
depreciation deductions as partners of Andantech-US.
B. Positions of the Parties
Petitioners assert that the sale-leaseback transaction
involved herein was a genuine multiple-party transaction, with
economic substance that was compelled or encouraged by business
realities, and was not shaped solely by tax-avoidance features. As
such, petitioners assert that the transaction should be respected
for Federal tax purposes because it satisfies the test of Frank
Lyon Co. v. United States, 435 U.S. 561, 583-584 (1978).
On the other hand, respondent contends that Comdisco devised
a transaction designed to allow foreign parties (not subject to
U.S. tax) to realize tax-free rental income, while allowing a U.S.
company to report significant tax deductions related to that rental
income. Here, approximately $87.8 million in rental income was
shifted (i.e., stripped) to non-U.S. taxpayers through Andantech-
Foreign, while Norwest, a U.S. taxpayer (for cash and preferred
stock totaling approximately $15.4 million), received, through RD
Leasing and Andantech-US, more than $100 million of depreciation
and interest deductions without recognizing any corresponding
rental income. Respondent contends that the “prearranged”
transaction at issue should not be respected for Federal tax
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