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equipment. See Nicole Rose Corp. v. Commissioner, 117 T.C. at
338; Coleman v. Commissioner, 87 T.C. 178, 199 (1986), affd.
without published opinion 833 F.2d 303 (3d Cir. 1987); Smoot v.
Commissioner, T.C. Memo. 1991-268. Marshall & Stevens applied a
10-year “yield decline curve” to computer equipment that was
assumed to have a life of 10 years. The 10-year assumption was
used even though the equipment under consideration had been
introduced into the market place a number of years before the
transaction.
The right to the equipment rental income for the remaining
terms of the underlying leases had considerable value, as each
lessee was highly creditworthy and in all events, the lessee was
required to make the scheduled rental payments. In the first
lease strip deal on November 30, 1994, HCA paid $11.763 million
to acquire the equipment rental stream due from K-Mart, Shared,
and other end users under the existing end-user leases.19 By
contrast, the rental stream under the over lease residual
interests had a substantially lower potential for value.
The following factors reflect that there was little
potential for value or rental income from the over lease residual
interests: (1) The original leases were entered into before
January 3 and September 28, 1995; (2) the equipment subject to
19Attached to this opinion as app. C is a schedule detailing
the monthly rental payments that Hitachi Credit America Corp.
(HCA) purchased in the Nov. 30, 1994, rent strip sale.
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