- 64 -
$4,282,953.18) As of September 1, 1997, petitioner’s actual out-
of-pocket cost was approximately $40,000.
4. Did Petitioner Have a Nontax Business Purpose for
Entering Into the Second Lease Strip Transaction?
The second lease strip deal was designed to provide
substantial tax benefits for petitioner. Petitioner acknowledges
that its only possibility for realizing an economic profit from
the over lease position depended upon rental income being
produced from the residual lease interests with respect to the K-
Mart and Shared equipment. The lease term in petitioner’s over
lease agreement, however, provided for no actual residual
interests in the K-Mart and Shared equipment. The over lease
agreement specified a lease term for the K-Mart and Shared
equipment that expired on the same dates as the master lease
respecting that equipment. Although acknowledging that the over
lease agreement provided respective termination dates of October
31, 2002, and April 30, 2000, with respect to the K-Mart and
Shared equipment, petitioner and Crispin assert that the over
lease termination dates are a “drafting error”. Petitioner and
Crispin maintain that the over lease was meant to run: (1) From
August 31, 1995, through February 28, 2004, in the case of the K-
18The $10 stock investment and the $215,000 obligation
represented petitioner’s only actual out-of-pocket expenditures.
As of the years under consideration, however, petitioner had paid
only $40,000 of the $215,000 obligation. All other purported
obligations were part of circular flows so that petitioner was
not required to make any out-of-pocket expenditures.
Page: Previous 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 NextLast modified: May 25, 2011