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the statute intended. Id. at 469; see also Knetsch v. United
States, 364 U.S. at 365. Even if we accepted petitioner’s
premise that the second lease strip deal was a typical deal,
petitioner’s approach focused solely on form with no regard for
the substance. The lease strip deals we consider in this case
are mere tax-avoidance devices or subterfuges mimicking a leasing
transaction. The obvious purpose was to obtain unwarranted and
substantial tax benefits.
We first consider whether petitioner subjectively had a
valid, nontax business purpose for entering into the second lease
strip deal. See ACM Pship. v. Commissioner, 157 F.3d at 247-248;
Casebeer v. Commissioner, 909 F.2d at 1363.
Petitioner claims to have entered the lease strip deal to
hold the over lease residual interests in the K-Mart and Shared
equipment because it expected to earn a pretax profit from the
equipment rental income or the income produced from disposition
of the residual interests. The over lease agreement, however,
provides for a lease term under which petitioner would have no
residual interests in the equipment because the agreement
specifies a lease term that expires on the same date as the
master lease respecting the same equipment. Thus the operative
legal document governing petitioner’s rights contains a
fundamental flaw and does not support petitioner’s over lease
position. Significantly, petitioner’s failure to discover and/or
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