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$2,307,500 ERA note and ERA’s lien under the $15.05 million CFP
note, and that $2,782,700 was the remaining balance owed on the
$15.05 million CFP note as of January 4, 1995.)6
After the January 3, 1995, transaction, CFX Financial made
master lease rental payments to EQ in amounts equal to EQ’s
installment payments to CFX Financial under the $14.125 million
EQ installment note. Pursuant to the January 3, 1995,
transaction, CFX claimed substantial tax benefits far greater
than its economic investment in the first lease strip deal.
Specifically, CFX Financial (which joined in consolidated income
tax returns filed by CFX and its other affiliates, including CFX
Bank) was in a position over the life of the master lease to (1)
receive fully offsetting payments under the EQ installment note
equal to CFX Financial’s master lease rental payments and only
recognizing for tax purposes the relatively smaller installment
note interest income, but (2) claiming substantially larger
deductions for all its master lease rental payments.
All of the transactions described in steps 1 through 8 above
were structured and undertaken to benefit CFX as the first lease
strip deal’s ultimate customer. CMACM received a $611,665 fee
for providing advice relating to the above-described
6As noted above in steps 1 and 2, both the $2,307,500 Equity
Resource Acquisition II (ERA) note to Computer Leasing, Inc.
(CLI), and the $15.05 million Capital Finance Partners (CFP) note
to ERA were payable within 60 days of Nov. 1, 1994.
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