- 87 -
b. No Reasonable Possibility for Profit
Existed
Petitioners assert that RD Leasing had a reasonable
opportunity to earn a profit from the transaction based upon the
forecasts of residual values made by the appraisers in 1993.
Petitioners insist that the forecasts of residual values of the
equipment were realistic. For the reasons set forth hereinafter,
we conclude that the sale-leaseback transaction involved herein had
no realistic potential to earn a meaningful profit.
In order to hold that tax avoidance was not the sole
motivation for the transaction, we must determine that a profit was
reasonably likely. Estate of Thomas v. Commissioner, 84 T.C. 412,
440 n.52 (1985). On an objective basis, we conclude that RD
Leasing had no reasonable prospect for pretax profit.
The key to profitability rested in achieving the projected
residual values for the equipment on the early or final termination
Dates.20 The record reveals that forecasting residual values is
inherently difficult in light of the fact that a forecaster’s
predictions rely upon future economic events and trends.
20 The estimated yields from the perspective of RD Leasing
was as follows:
Early Final
Termination Termination
September projections 6.60% 14.00%
December projections 6.70 14.10
Mr. Fleming’s analysis 5.74 12.95
Page: Previous 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 NextLast modified: May 25, 2011