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at the closing, with the balance of $5,629,000 financed through a
12-year nonrecourse promissory note (ECI note). Each monthly
installment on the ECI note was $81,250.
Simultaneously, ECI resold the recyclers to F&G Equipment
Corp. (F&G) for $7 million. F&G agreed to pay ECI $513,000 at
the closing, with the balance of $6,487,000 financed through a
purportedly partial recourse promissory note (F&G note). The F&G
note was recourse against F&G to the extent of 20 percent of its
face value. However, the recourse portion was payable only after
F&G satisfied the nonrecourse portion of the note. Each monthly
installment on the F&G note was $81,250. In turn, F&G leased the
recyclers to SAB Foam for a monthly base rent of $81,250.
Pursuant to the lease and in accordance with applicable
provisions of the Internal Revenue Code and the Treasury
regulations, F&G elected to treat SAB Foam as having purchased
the recyclers for purposes of the investment and business energy
tax credits.
Simultaneously, SAB Foam entered into a joint venture with
PI and Resin Recyclers, Inc. (RRI). The joint venture agreement
provided that RRI was to assist SAB Foam with the placement of
recyclers with end-users and that PI was to pay a monthly joint
venture fee to SAB Foam of $81,250.
In connection with the SAB Foam transactions, therefore, the
arrangement was that PI would pay a monthly joint venture fee to
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Last modified: May 25, 2011