-4-
of last resort under the applicable law.2 Unless otherwise
noted, section references are to the applicable versions of the
Internal Revenue Code.
FINDINGS OF FACT
LCL was formed as a Wyoming limited liability company on
April 30, 1998, and was treated as a partnership for Federal
income tax purposes. LCL operated on the basis of a fiscal year
ended July 31, and it filed Forms 1065, U.S. Return of
Partnership Income, to report its operations for Federal income
tax purposes. During the relevant years, LCL engaged in
equipment leasing activities and purchased equipment subject to a
lease. LCL partially financed its purchases of that equipment
using promissory notes. Some portions of the notes were
recourse; the remaining portions were nonrecourse.
LCL’s members were HBW and HCC. HBW owned 99 of LCL’s 100
membership units, and HCC owned the remaining unit. During the
subject years, HBW was a wholly owned subsidiary of HHC and a
member of its affiliated group. HCC also was connected with that
group.
Relevant Equipment Leasing Activities
In 1998, LCL purchased some equipment from Capital Resources
Group, Inc. (CRG). In connection with this purchase, LCL signed
2 We decide the relevant issue as to HBW. As mentioned
above, HHC was the parent of HBW, and HBW was the relevant member
of LCL.
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