Donald L. Walford - Page 14

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          made to achieve grossly inflated tax benefits.11  If Sav-Fuel’s             
          dominant or primary objective was to achieve a profit, it would             
          not have purchased the EMS at such a grossly inflated price.                
               The method of financing used in the EMS transactions also              
          indicates that Sav-Fuel lacked the requisite profit objective.              
          In purchasing the EMS, Nisona made a cash payment to Dard of only           
          $337,000 and financed the remainder of the purchase price with a            
          nonrecourse note.  The cash payment neatly coincides with the               
          full price paid to CEF, the unrelated party.  Similarly, Sav-Fuel           
          financed $9,004,500 of the purchase price with a nonrecourse                
          note, which Nisona was to assign to Dard as collateral for its              
          note.  Both notes were not due for 25 years.  The sole source of            
          repayment of the nonrecourse note from Sav-Fuel to Nisona was               
          revenues received by Sav-Fuel from CEF under the management                 
          agreement.  These revenues were based on the gross energy savings           
          realized from the use of the energy management equipment.                   
          However, it is unclear from the record whether the EMS was                  
          actually installed at Gould and whether there were any energy               
          savings.                                                                    
               The evidence in the record reflects that the grossly                   
          inflated purchase price and the nature of the nonrecourse                   


               11Even if we were to accept petitioner’s unsupported                   
          valuation for the EMS of $5 million, this amount is still almost            
          1,500 percent greater than the price paid by Dard to CEF for the            
          EMS (5,000,000 � 337,000 = 14.84, or 1,484 percent).                        





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