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entitlement to a $2,052,900 ordinary loss and a $1,859,135
business bad debt deduction for 1997 with respect to advances to
Cap Corp.; (3) $2 million of the NSI consulting fee and (a)
whether it is includable in petitioner’s 1997 income, and (b) if
it is includable in income, whether petitioner is entitled to a
$2 million business deduction for 1997; (4) petitioner’s
entitlement to a $76,705 business bad debt deduction for 1996
concerning loans to Koehler; and (5) whether petitioner is liable
for penalties under section 6662.
I. Petitioner’s Second Lease Strip Deal
Petitioner arranged lease strip deals using tax-indifferent
parties and series of complex multiparty transactions to secure
substantial tax benefits exponentially larger than taxpayers’
economic investments in the deals. The parties’ arguments
concerning these deals involve questions of substance versus
form. Petitioner relies on the form of the transactions, and
respondent relies on the substance. Specifically, respondent
contends that petitioner’s second lease strip deal lacks economic
substance and should not be respected for tax purposes.
Alternatively, respondent contends that petitioner’s claimed
rental expenses and note disposition losses are neither ordinary
and necessary business expenses under section 162 nor otherwise
deductible losses under section 165.
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