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On July 20, 1998, CMACM redeemed the 10 shares of CMACM
common stock held by CAP for $500. On its return for its taxable
year ended November 30, 1998, petitioner wrote off and deducted
the $10,000 and $1,000 Lexington notes issued to CMACM in the
CMACM-Lexington transactions.
In the second lease strip deal, the over lease residual
interests in the K-Mart and Shared equipment were the sole source
of possible cashflow and pretax profit to petitioner. About 2
months after CMACM obtained the over lease residual interests
from CAP, CMACM transferred the over lease residual interest in
the K-Mart equipment to Okoma. On October 31, 1996, CMACM
transferred 25 percent of its over lease residual interest in the
Shared equipment to Lexington. As previously noted, upon
termination of the Shared end-user lease (March 29, 1997), the
Shared equipment was to be returned to CLI. On September 1,
1997, CMACM transferred the remaining 75 percent of its over
lease residual interest in the Shared equipment to Lexington.
For 1998, petitioner wrote off the $10,000 and $1,000 Lexington
notes that CMACM earlier received in exchange for CMACM’s
residual lease interest in the Shared equipment. Christopher
Hughes (Hughes), petitioner’s manager for tax and accounting,
concluded, among other things, that Lexington’s lease position in
the Shared equipment was worthless.
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