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noted that “The holding of such a security interest is common in
sales agreements, and * * * not inconsistent with the interest of
a creditor.” Id. at 610; see also Hoffman v. Commissioner, 47
T.C. 218, 232 (1966), affd. 391 F.2d 930 (5th Cir. 1968). Fur-
thermore, at trial, the Hursts offered credible evidence from
their professional advisers that these transactions, including
the grant of a security interest to Mr. Hurst, were consistent
with common practice for seller-financed deals.
2. The Lease
HMI also leased its headquarters on Safety Drive from the
Hursts. As with the notes, the lease called for a fixed rent in
no way conditioned upon the financial performance of HMI. Attor-
ney Ron David, who was intimately familiar with the transaction,
testified convincingly that there was no relationship between the
obligations of the parties and the financial performance of HMI.
The transactional documents admitted into evidence do not indi-
cate otherwise. There is simply no evidence that the payment
terms in the lease between the Hursts and HMI vary from those
that would be reasonable if negotiated between unrelated parties.
And the Hursts point out that the IRS itself has ruled that an
arm’s-length lease allowing a redeeming corporation to use pro-
perty owned by a former owner does not preclude characterization
as a redemption. Rev. Rul. 77-467, 1977-2 C.B. 92.
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