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nominal equipment leasing activities were either shams
or devoid of the substance necessary for recognition
for federal income tax purposes, and the transactions
were not, in substance, true leases.
Respondent also explained that the partnership’s tax benefits
were disallowed because the partnership (1) did not engage in or
conduct for profit the activity of the acquisition of and
transfer of right in the recyclers, (2) failed to substantiate
its deductions, and (3) failed to show that the deductions were
incurred, constituted ordinary and necessary business expenses,
were properly paid or accrued, or were deductible in the year
claimed. Respondent also stated that, because the liabilities to
which the recyclers were subject were “nonrecourse, contingent
and lacking in true economic substance, they cannot be considered
a component of the value of the equipment” for purposes of
computing tax credits or the value of the equipment for any other
reason.
An attachment entitled “INFORMATION REGARDING ADDITIONS TO
TAX” was also included with the FPAA. The attachment referenced
sections 6653(a), 6659, and 6621(c), indicated that the sections
would be applied in appropriate cases, and stated that amounts
determined under those sections would be assessed separately
after the completion of the partnership proceeding.
Petitioner’s Post-FPAA Activities
In late 1987 or early 1988, after respondent had issued the
FPAA, petitioner performed an analysis of the economics of the
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