- 74 -
a. The Experts’ Opinions
Respondent’s expert, Peter Daley (Daley), opined that, as of
September 28, 1995, the K-Mart and Shared end-user lease
equipment would: (1) Have almost no estimated residual value
when petitioner’s purported over lease residual interest periods
began; and (2) not generate rental income during the over lease
residual interest periods. Obviously, if the over lease residual
interests had minimal or no value when acquired, petitioner would
not pass the second prong of the economic substance test.
Petitioner’s expert, Robert S. Svoboda (Svoboda), opined
that the over lease residual interests had a fair market value of
$122,000 to $263,000 as of September 28, 1995. Petitioner
contends that it should succeed if it establishes that there was
a projected rental income above $215,00021 as of September 28,
1995. In other words, petitioner argues that the economic
substance test is met if it shows that as of September 28, 1995,
some potential existed for petitioner’s earning a pretax profit.
In that regard, petitioner also argues that its projected future
over lease residual interest rental income need not be discounted
to its present value as of September 28, 1995.
21This amount would have been petitioner’s maximum out-of-
pocket cost if the note obligation had been fully paid. We note,
however, that petitioner had paid only $40,000 of the $215,000 as
of the time under consideration.
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