- 90 -
In actuality, Crispin, Koehler, Mallin, petitioner, and
others viewed the $4,056,220 Jenrich note and the $10,000 and
$1,000 Lexington notes as having no practical economic effect.
Their actions evidence that they themselves viewed the notes as
merely being part of the paper facade needed to support
substantial tax benefits for petitioner. Accordingly, the
$4,056,220 Jenrich note and the $10,000 and $1,000 Lexington
notes are not considered valid indebtedness for tax purposes.
On the basis of the foregoing, we hold that the second lease
strip deal lacks economic substance and is not to be respected
for tax purposes. See Frank Lyon Co. v. United States, supra;
Knetsch v. United States, 364 U.S. at 366; Gregory v. Helvering,
293 U.S. 465 (1935); ACM Pship. v. Commissioner, 157 F.3d at 231;
Casebeer v. Commissioner, 909 F.2d at 1363; Nicole Rose Corp. v.
Commissioner, 117 T.C. at 336. Clearly, the combination of steps
and transactions in the second lease strip deal had no meaningful
purpose other than to generate tax benefits.
B. Petitioner’s Entitlement to Its Claimed Deductions
Because we have held that the second lease strip deal lacked
economic substance, it follows that petitioner is not entitled to
its claimed rental expense deductions of $414,041 and $237,853
for its taxable years ended November 30, 1996 and 1997,
respectively.
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