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equipment purchase note. On that same date, CMA contributed
$68,000 to CMACM in exchange for 68,000 shares of CMACM common
stock.
For tax purposes, CMACM claimed a $4,081,319 carryover basis
in the Jenrich note, consisting of the note’s $4,056,220 face
value and accrued interest of $25,099. By means of a March 25,
1996, letter agreement, CMACM and Jenrich agreed to offset
CMACM’s over lease rental payment liability and Jenrich’s
installment note liability against one another so that no cash
payments would have to be made by CMACM or Jenrich.
6. On November 27, 1995, CMACM transferred all of its
interests and obligations under various agreements relating to
the K-Mart end-user lease equipment to Okoma Enterprises, LP
(Okoma), a Delaware limited partnership. Among other things,
CMACM transferred the following to Okoma: (1) CMACM’s over lease
rights in the K-Mart equipment, and (2) a portion of the Jenrich
note in the amount of $1,982,185. In exchange, Okoma assumed
CMACM’s over lease obligations concerning the K-Mart end-user
lease equipment and also CMACM’s obligations on the CAP note in
the amount of $235,000. Okoma’s 99-percent limited partner was
the Iowa Tribe and Okoma’s 1-percent managing general partner was
MBP Administration, Inc., a Nevada corporation. On its 1995
Federal return, petitioner characterized CMACM’s partial
disposition of the Jenrich note as a “rental expense” of
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