-178-
Commissioner, 820 F.2d at 1549). Courts have refused to
recognize the tax consequences of transactions which do not
appreciably affect the taxpayer’s beneficial interests except for
tax reduction. See, e.g., Knetsch v. United States, 364 U.S. at
366; ACM Pship. v. Commissioner, 157 F.3d 231, 248 (3d Cir.
1998), affg. in part, revg. in part, dismissing in part, and
remanding on other grounds T.C. Memo. 1997-115.
In exchange for the banks’ “contributions” to SMP, the
Ackerman group paid an upfront $5 million advisory fee to CLIS
and irrevocably agreed to purchase the banks’ preferred interests
for $5 million, which it placed in a blocked account upon the
closing of the transaction. As explained in greater detail
below, however, these inducements exceeded the value of the
contributions that the banks made to SMP. The SMHC receivables
and stock that Generale Bank and CLIS contributed to SMP did not
add any appreciable value to that enterprise. Any value that
might have existed in those contributed properties was contingent
on SMHC’s ability to generate income. All objective indications
are that SMHC had no such ability and could not reasonably have
been expected to have any such ability, without a mass infusion
of new capital.
At the time of the transaction between the banks and the
Ackerman group, SMHC held only three significant “assets”: (1)
The EBD film library; (2) the Carolco securities; and (3) large
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