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out and (2) the rental payments that the beneficiary deducted
were fully offset by the payments due the beneficiary under the
equipment purchase installment note. The ultimate beneficiary/
customer’s potential net tax benefits in the first lease strip
deal equaled the total rental payments due under the wraparound
lease less the interest portion of the installment note payments.
According to a tax opinion issued to CFX Corp. (CFX) (the first
lease strip deal’s ultimate beneficiary/ customer), while the
economic cost of the deal to CFX would be approximately $2.9
million, the deal would generate approximately $13.8 million in
potential net tax deductions for CFX over the life of the
wraparound lease.
In each of the two lease strip deals, the ultimate
beneficiary/customer’s only prospect of realizing a pretax
economic profit on the deal essentially depended upon whether the
rental income produced during the wraparound lease residual
periods would exceed the economic investment in the deal. In
addition, although a series of complex multiparty transactions
(which are discussed in more detail infra) was required to
implement each of these two lease strip deals, typically, the
beneficiary/customer infused the only noncircuitous cash paid to
participants, brokers, lawyers, and others involved in setting up
that deal.
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Last modified: May 25, 2011