- 57 -
Hines v. United States, 912 F.2d 736, 741 (4th Cir. 1990). De
minimis or inconsequential pretax profits relative to a
taxpayer’s artificially and grossly inflated claim of potential
tax benefits may be insufficient to imbue an otherwise
economically questionable transaction with economic substance.
ACM Pship. v. Commissioner, 157 F.3d at 257; Sheldon v.
Commissioner, 94 T.C. 738, 767-768 (1990).
2. Background and Recapitulation of the Two Lease
Strip Transactions
Petitioner is a privately held corporation owned and
controlled by Crispin, its 98-percent shareholder and ultimate
decision maker. Petitioner was generally involved in equipment
leasing transactions and helping to structure the financing of
equipment, including the arranging of lease strip deals. Through
the maneuvering of certain equipment and existing leases through
a preconceived series of transactions using several entities,
rental income and related rental expenses are bifurcated and
reallocated to different parties. Virtually all of the rental
income is stripped out and allocated to a tax-indifferent party
in order to provide a disproportionately large share of tax
benefits (deductions) to a taxpayer. In addition, the character
of the income may be changed; i.e., capital gains are converted
to ordinary income or vice versa. By late 1994, petitioner had
extensive experience in arranging lease strip deals.
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