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produce substantial potential tax benefits in the lease strip
deals. CFX was to claim approximately $13.8 million in net
rental expense deductions during the master lease. Petitioner
sought to claim deductions in the $3 to $4 million range for net
rental payments during the over lease. Yet the respective master
lease and over lease purported rental payments would equal,
coincide with, and be completely offset by the purported
equipment installment note payments CFX and petitioner were to
receive.
In deciding the extent to which a nonrecourse note may be
accorded economic substance, a number of courts have relied
heavily on whether the fair market value of the underlying
property was within a reasonable range of its stated purchase
price. E.g., Estate of Franklin v. Commissioner, 544 F.2d 1045,
1048 (9th Cir. 1976), affg. 64 T.C. 752 (1975); Hager v.
Commissioner, 76 T.C. 759 (1981); see Hilton v. Commissioner, 74
T.C. 305, 363 (1980), affd. 671 F.2d 316 (9th Cir. 1982); cf.
Frank Lyon Co. v. United States, 435 U.S. 561 (1978) (where,
among other things, the buyer-lessor in a sale-leaseback
transaction was personally liable on the mortgage).
In addition, the mere labeling of a note as recourse is not
controlling. A note’s recourse label does not preclude inquiry
into the adequacy of the collateral securing an alleged purchase
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