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6. Conclusion as to the Economic Substance of
Petitioner’s Lease Strip Deal
Petitioner did not have a valid nontax business purpose for
entering into the second lease strip deal. Aside from potential
tax benefits, the second lease strip deal did not have any
objectively demonstrable, practical economic profit potential for
petitioner. The transactions for the second lease strip deal
were effected through various participating and pass-through
entities, a number of which either were related to petitioner or
were owned and/or controlled by others who regularly cooperated
with petitioner and/or Crispin in lease strip deals and/or other
types of transactions. The other participants involved in the
first and second lease strip deals, in most instances, were not
acting at arm’s length and shared a common interest in inflating
the values of the underlying equipment and the values of the
leases and residual interests to generate substantial potential
tax benefits for the ultimate beneficiaries/customers. As
Raynault testified, CFX put up the only meaningful amount of
capital to be derived by the participants and others involved in
setting up the first deal.
Much of the purported debt and other payment obligations
incurred in lease strip deals were to be offset by circuitous
cashflows among the participants. For example, the supposedly
high-basis $14.125 million EQ and $4,056,220 Jenrich equipment
purchase installment notes played key roles in the plan to
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