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purported section 351 transaction by CFP to CFX Financial (a
subsidiary of CFX) of (a) the wraparound lease position and (b)
the equipment purchase installment note or payment rights.
In the second lease strip deal, in which petitioner was the
customer/taxpayer, similar transactions were employed including
“taxable sale”-leaseback transactions and a rent strip sale
involving the Iowa Tribe, a tax-indifferent party, to generate
deductions disproportionately larger than petitioner’s economic
investment in that deal. Unlike the beneficiary of the first
lease strip deal, petitioner did not retain the over lease
wraparound lease position for the entire life of the lease.
Instead, petitioner disposed of its over lease position and the
accompanying equipment installment note in a series of three
transactions during a 21-month period from November 27, 1995,
through September 1, 1997.
Normally, in lease strip deals structured by petitioner, the
tax benefits customer was wholly unrelated to petitioner. In the
second deal, however, petitioner was the tax benefits customer
that claimed the deductions from the lease strip deal with
respect to the same K-Mart and Shared equipment. After arranging
the first lease strip deal for CFX, petitioner reconfigured,
refined, and reused the ownership of the K-Mart and Shared
equipment, the K-Mart and Shared end-user leases, and the master
lease to create a second lease strip deal and the over lease
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