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In connection with the SAB Foam transactions, therefore, the
arrangement was that PI would pay a monthly joint venture fee to
SAB Foam, in the same amount that SAB Foam would pay monthly to
F&G as rent, in the same amount that F&G would pay monthly to ECI
on the F&G note, in the same amount that ECI would pay monthly to
PI on the ECI note. In connection with these arrangements by PI,
ECI, F&G, SAB Foam, and RRI, these monthly payments were
offsetting, so they could be kept as bookkeeping entries with no
money actually changing hands.
On its 1982 Form 1065, U.S. Partnership Return of Income,
SAB Foam reported that the four recyclers had an aggregate basis
of $7 million, or $1,750,000 each, for purposes of the investment
and business energy tax credits. In the present case, the
undisputed evidence, including the stipulation of the parties,
establishes that the recyclers were not properly valued at
$1,750,000 but instead had a maximum value of $30,000 to $50,000
each. SAB Foam reported a net ordinary loss of $662,556. SAB
Foam included the portion of credits and losses attributed to
petitioners on Schedules K-1, Shareholder’s Share of Income,
Credits, Deductions, Etc., filed with SAB Foam’s partnership tax
return.
B. Private Offering Memorandum
The private offering memorandum (memorandum) that generally
was distributed to potential investors contemplated the creation
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