Santa Monica Pictures, LLC, Perry Lerner, Tax Matters Partner - Page 92

                                        -174-                                         
                    e.  Carolco Securities                                            
               Petitioner points to Generale Bank’s and CLIS’s interest in            
          receiving the future value of the Carolco securities that SMHC              
          held as evidencing economic substance in the banks’ preferred SMP           
          membership interests.  Petitioner points out that even after                
          Generale Bank and CLIS exercised their put rights, SMP continued            
          to treat Generale Bank and CLIS as partners, sending those                  
          entities Schedules K-1 for each year from the time the banks made           
          their contributions.                                                        
               Generale Bank’s and CLIS’s retained interest in the Carolco            
          securities does not reflect a long-term commitment to SMP or SMHC           
          or lend substance to their purported membership interests.                  
          Although the Carolco securities were to be held in SMHC, whatever           
          value might have been realized on the Carolco securities had                
          nothing to do with SMHC, SMP, or any prospective film                       
          distribution business.  Instead, Generale Bank and CLIS had tied            
          up whatever value that remained in the Carolco securities as a              
          contingent amount in their put purchase price.                              
               Amendment No. 1 also gave the banks certain preferred                  
          distribution rights to any value that might be realized from a              
          liquidation of the Carolco securities.125  Petitioner points to             

               125 With respect to the Carolco subordinated notes, Amendment          
          No. 1 provided that as promptly as practicable after the “SN                
          Liquidation Date”, SMP would distribute to holders of preferred             
          interests pro rata in accordance with their respective preferred            
                                                             (continued...)           





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