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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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