-153-
recognized that the banks were committed as partners from the
time they signed the partnership documents.” Petitioner’s
argument might be construed to suggest that the banks’
contributions to SMP and their receipt of preferred interests had
objective economic significance beyond petitioner’s asserted
business purpose for the transaction and the existence of the
Ackerman group’s tax considerations. We disagree. The banks’
tightly wrapped and virtually guaranteed exercise of their put
rights negates whatever economic significance might otherwise
have attached to the banks’ joining SMP. The faint illusion of a
partnership interest cannot cloak the reality that the banks
planned, and had every economic incentive, to exit the
partnership as expeditiously as possible. In substance, the
Ackerman group paid the banks $10 million ($5 million as an up-
front “advisory fee” and $5 million upon the banks’ exercise of
their put rights) in exchange for the banks’ high-basis, low-
value receivables and SMHC stock so that the banks could
“monetize”, and the Ackerman group could attempt to exploit, the
tax attributes associated with these assets.
a. Advisory Fee and Put Price
All the various agreements between the Credit Lyonnais group
and the Ackerman group were tied to the side letter agreement,
the deposit account agreement, and the advisory fee deposit. For
example, the side letter agreement provides that it shall become
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