UNITED STATES TAX COURT

T.C. Memo. 1999-130

UNITED STATES TAX COURT

LOWELL L. AND MARILYN A. ROBERTSON, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent*

Docket No. 15586-88.

Filed April 20, 1999.

Albert H. Turkus and Frederick T. Goldberg, for

petitioners.

Michael D. Wilder and Paulette Segal, for

respondent.

SUPPLEMENTAL MEMORANDUM FINDINGS OF FACT AND OPINION

WHALEN, Judge:

This case is before the Court to

reconsider that part of our opinion in Robertson v.

*This opinion supplements our opinion in Robertson v.

Commissioner, T.C. Memo. 1994-424.

- 2 Commissioner, filed at T.C. Memo. 1994-424 (hereinafter

Robertson I), holding petitioners liable for additions

to tax under sections 6653(a)(1) and (2) and 6661.

All

section references are to the Internal Revenue Code, as

amended and in effect during the years in issue.

It is

also before the Court to resolve the dispute between the

parties over the correct amount of the deficiencies to be

entered in accordance with the findings and conclusions

of the Court in Robertson I, pursuant to the procedure

specified in Rule 155 of the Tax Court Rules of Practice

and Procedure.

In this opinion, all Rule references are

to the Tax Court Rules of Practice and Procedure unless

otherwise stated.

Robertson I dealt with petitioners' income tax return

for 1984 in which they claimed a loss from a sale-leaseback

transaction, involving computer equipment, that had been

entered into by the Roscrea Trust (hereinafter sometimes

referred to as the Trust) of which Lowell L. Robertson

(petitioner) was a unitholder.

We held that the trans-

action was a sham because it lacked economic substance and

was not entered into with a business purpose.

Accordingly,

we sustained respondent's disallowance of the loss.

We

also sustained respondent's determination of petitioners'

liability for additions to tax under sections 6653(a)(1)

- 3 and (2) and 6661 and for increased interest under section

6621(c).

Following the release of Robertson I, the Court and

counsel for the parties in 47 other cases that were filed

by the other unitholders of the Roscrea Trust and by

petitioners for the years 1982, 1983, and 1985 agreed that

petitioners and the other unitholders of the Trust were

bound by Robertson I as to the losses claimed from the

Trust, a determination made at the entity level, but that

the other unitholders were not bound by Robertson I as to

a unitholder's liability for the additions to tax under

sections 6653 and 6661, a determination made at the unitholder level.

See Merino v. Commissioner, T.C. Memo. 1997-

385; Webb v. Commissioner, T.C. Memo. 1990-556, remanded

without published opinion 17 F.3d 398 (9th Cir. 1994).

The other unitholders advised the Court that they wished

to present evidence on the issue of their liability for

the additions to tax under sections 6653 and 6661 but

represented that such evidence would not be taxpayer

specific.

After discussions, the parties in each of

the related cases agreed to be bound by the result in

the instant case, and the Court reopened the record and set

it for further trial to permit petitioners to introduce

- 4 additional evidence concerning petitioners' liability for

the additions to tax that were determined by respondent.

In connection with that further trial, petitioners

submitted to the Court and served on respondent the

"expert" witness reports of Mr. Paul M. Raynault, founder

and chairman of Computer Leasing, Inc., a firm specializing

in computer lease financing and management, and Professor

George Mundstock, a professor of law at the University of

Miami.

In response, respondent filed a motion in limine

asking the Court to exclude that "expert" testimony on

the ground that it is neither relevant nor helpful to

the trier of fact.

At the further trial, the Court took

respondent's motion in limine under advisement and

permitted both experts to testify subject thereto.

Petitioners presented no other testimony or evidence.

FINDINGS OF FACT

The facts are set forth in Robertson I and are

incorporated herein by reference.

We restate only those

facts necessary to address petitioners' position that "the

Court should vacate those portions of its decision [sic]

relating to additions to tax and hold that Petitioner is

not liable for any such additions pursuant to Sections

6653(a) and 6661."

- 5 Petitioner is a unitholder of the Roscrea Trust that

was formed by 24 partners and principals of a major

national accounting firm specifically to facilitate their

participation in the subject sale-leaseback transaction.

Pursuant to a Purchase, Sale and Assignment Agreement dated

December 28, 1982 (Sale Agreement), the Trust purchased an

interest in certain computer equipment from Systems

Leasing, Inc. (Systems).

The Sale Agreement describes the

equipment as Domestic Equipment and Foreign Equipment.

The

Domestic Equipment consisted of equipment manufactured by

IBM and leased to Burroughs Wellcome Co., the initial user,

for a 60-month term beginning on or about June 1, 1982, and

equipment manufactured by Control Data Corp. and leased to

First Computer Corp., the initial user, for a 37-month term

beginning on or about August 31, 1982.

The Foreign Equip-

ment was manufactured by IBM and was leased to DuPont de

Nemours (Deutschland) GmbH, the initial user, part of

it for a 48-month term beginning on or about November 1,

1982, and part of it for a 36-month term beginning on or

about the same date.

At the time the Trust entered into the Sale Agreement,

the equipment was subject to two master leases, one covering the Domestic Equipment between Systems and Equilease

Associates I Limited Partnership, and one covering the

- 6 Foreign Equipment between Systems and Equilease C.V.

We

shall refer to all Equilease entities as Equilease.

Under

each master lease, Systems, as lessor, leased the equipment

to Equilease, as lessee, and assigned to Equilease all of

the lessor's rights under the initial user leases.

term of both master leases was 96 months.

The

In return,

Equilease agreed to pay fixed rent, contingent rent, and

taxes.

Generally, fixed rent refers to the rent to be paid

by Equilease.

The amount of the fixed rent was equal to

the payments the Trust was required to make under the Trust

Note, as further discussed below.

Contingent rent refers

to the rent that might be received from re-leasing the

equipment between expiration of the initial user leases

and the end of the master leases.

Under the terms of the

master leases, the Trust and Equilease shared any

contingent rent.

Under the Sale Agreement, the Trust purchased an

interest in the subject computer equipment and received

assignment of Systems' interest in the master leases.

The stated purchase price was $5,170,392.

The Trust

paid Systems $954,000 in cash, of which $917,392 was

characterized as a downpayment and $36,608 was

characterized as a prepayment of interest due on the

Trust Note in 1983.

The Trust issued a promissory note

- 7 to Systems in the principal amount of $4,253,000 (Trust

Note) that bore interest at the rate of 16¾ percent per

annum compounded quarterly and was secured by a security

interest in favor of seller in the rents from the master

leases and the equipment.

The Trust Note required payment

of interest only for each of the first 4 quarters, in

arrears in the amount of $168,942.50 per quarter, and payment in the amount of $260,781.95 for each of the remaining

28 quarters.

As mentioned above, each payment due from the Trust

under the Trust Note was exactly offset by the aggregate

quarterly payments of fixed rent that the Trust was

entitled to receive from Equilease under the master leases.

The Investment Memorandum states as follows:

The term of each [Master] Lease coincides

with the term of the Trust Note. Payment of

fixed rent under each Lease will be due quarterly

in arrears commencing with the end of the first

quarter following the Closing and thereafter on

the last day of the calendar quarter to which

each such payment relates, and, if paid, all such

payments will be sufficient to pay the quarterly

installments under the Trust Note as and when

due. Any distributable cash flow to the Trust

will be dependent on the re-leasing of the

Equipment after the expiration of the initial

term of the User Leases, although the fixed rent

payments during that time, if paid, will be

sufficient to pay all installments on the Trust

Note as and when due.

- 8 The Investment Memorandum further states as follows:

If [fixed] rent is timely paid by each

Lessee over the eight years of the [Master]

Leases, the Trustee will receive, in the

aggregate, minimum payments, in arrears, of

$168,942.50 ($1,689.42 per unit) per quarter

for the first four quarters and $260,781.95

($2,607.82 per unit) per quarter for the

remaining twenty-eight quarters. The Trustee

will be required to apply all of such minimum

receipts to interest payments and debt

amortization under the Trust Note.

The Declaration of Trust provided that the Trust would

terminate shortly after the expiration of the master

leases.

While it was possible for the unitholders to agree

to establish a new trust and re-lease the computer equipment, it was anticipated that the equipment would be sold

after expiration of the master leases.

The Investment

Memorandum states as follows:

At the expiration of the Leases, all of the

Unitholders may direct the Trustee to remarket

the Equipment on their behalf. If the Equipment

is re-leased and not sold, the Unitholders, as

co-owners of the Equipment, must provide for the

payment to each owner of his share of the rent

and may elect to establish a new trust. The

Declaration of Trust provides that the Trust will

terminate for all purposes 8 years and 3 months

after its creation, unless it has been terminated

at an earlier date, for example, following a sale

of the Equipment. (See "Acquisition and Lease

Terms--Marketing arrangements".) In the absence

of unanimity among the Unitholders as to any

proposed remarketing of the Equipment, the

Declaration of Trust provides that the Equipment

will be sold at auction and the net proceeds of

- 9 such sale will be distributed to the owners in

accordance with their respective ownership

interests in the Equipment. (See "Risk Factors

--Termination of the Trust.")

In view of the fact that the quarterly payments of

fixed rent equaled the quarterly installments under the

Trust Note, any economic benefit to the unitholders from

this transaction could arise from only two sources:

Contingent Rents and the proceeds from the sale of the

equipment after expiration of the 96-month master leases.

The Investment Memorandum states as follows:

Economic benefits to the Unitholders during the

term of the Leases will arise out of rents

payable under the Leases by Lessees, which rent

will consist of both fixed rent and certain

"Additional Rents" [i.e., contingent rents]

based on a percentage of revenues, if any from

the re-leasing of the Domestic Equipment by

Domestic Lessee and the re-leasing of the Foreign

Equipment by Foreign Lessee following the

expiration of the initial term of the Domestic

User Leases and the Foreign User Lease (the "User

Leases"). Fixed rents payable under the Leases

together with the investor's cash contributions

to the Trust will be sufficient to service the

installment obligations under the Trust Note.

*

*

*

*

*

*

*

Apart from Additional Rent, if any, which

the Trustee may receive (see "Acquisition and

Lease Terms"), the residual value of the

Equipment after the expiration of the [Master]

Leases is the sole source of funds to which a

Unitholder will have to look for a return of

his capital investment in the Trust.

- 10 The Investment Memorandum also states:

Except for the Trustee's right to collect

the Additional Rent [i.e., Contingent Rent], any

ultimate economic return to the Unitholders is

dependent upon the residual value of the Equipment, if any, at the expiration of the terms of

the [Master] Leases.

OPINION

This case involves a garden-variety computer leasing

tax shelter similar to others that the Court has held to be

shams.

See Estate of Strober v. Commissioner, T.C. Memo.

1992-350; Mele v. Commissioner, T.C. Memo. 1988-409;

Dobbs v. Commissioner, T.C. Memo. 1987-361; cf. Rubin v.

Commissioner, T.C. Memo. 1989-484.

There is nothing novel

in the transaction or the Court's opinion in response to

it.

In Robertson I, we held that petitioners had failed

to meet their burden of proving that the subject saleleaseback transaction was not a sham as had been determined

by respondent.

We considered both the economic substance

of the transactions, i.e., whether they offered a reasonable opportunity for profit exclusive of tax benefits, and

petitioner's subjective business purpose for entering the

transactions, i.e., whether he had a profit objective or

purchased an interest in the trust solely to acquire tax

benefits.

See generally Gilman v. Commissioner, 933 F.2d

143, 147-148 (2d Cir. 1991), affg. T.C. Memo. 1990-205;

- 11 Casebeer v. Commissioner, 909 F.2d 1360, 1363 (9th Cir.

1990), affg. in part, revg. in part and remanding T.C.

Memo. 1987-628, Larsen v. Commissioner, 89 T.C. 1229

(1987), Sturm v. Commissioner, T.C. Memo. 1987-625,

Moore v. Commissioner, T.C. Memo. 1987-626; Sochin v.

Commissioner, 843 F.2d 351, 354 (9th Cir. 1988), affg.

Brown v. Commissioner, 85 T.C. 968 (1985); Rice's Toyota

World, Inc. v. Commissioner, 81 T.C. 184, 201-204 (1983),

affd. in part, revd. in part, and remanded 752 F.2d 89

(4th Cir. 1985).

On the basis of all of the facts and circumstances

presented, we found that petitioner's purchase of an

interest in the Trust was without economic substance.

That finding was based upon factors commonly reviewed

in determining whether a computer leasing transaction

possesses economic substance, including the presence or

absence of arm's-length price negotiations, the reasonableness of the income and residual value projections,

the structure of the financing, the degree of adherence

to contractual terms, and, of particular significance in

this case, the relationship between the sale price and

fair market value of the property acquired.

Commissioner, 91 T.C. 838, 856 (1988).

See Levy v.

In considering the

last factor, we took note of "the limited nature of the

- 12 interest acquired" by the Trust.

Robertson I states as

follows:

It is apparent that the Trust purchased

interests from Systems that were stripped of much

of their value. The Trust held no right to the

use of, or the proceeds from, the equipment until

the expiration of the Initial User Leases.

Further, the Trust held the right to receive only

approximately half of the net rental proceeds

from the equipment between the end of the Initial

User Leases and the end of the Master Leases.

The other half of the net rental proceeds would

flow to the Equilease entities under the Master

Leases. Thus, the interests in the subject

equipment were limited residual interests.

Thus, for purposes of evaluating the economic substance

of the transaction, we focused on the limited interest

acquired by the Trust rather than on the full fair market

value of the equipment involved.

We described that

interest as follows:

that interest was essentially the ownership of

the equipment after the expiration of the Master

Leases plus the right to approximately half of

the net rental stream between the end of the

Initial User Leases and the end of the Master

Leases.

This accords with the Investment Memorandum, quoted above,

and the testimony of petitioners' witnesses that the

economic benefit to the unitholders could arise only from

contingent rents and the residual value of the equipment at

- 13 the end of the master leases.

For example, Mr. Eli Gerver,

one of the unitholders, testified as follows:

Our expectation of profit came from two

sources: the rents which might achieve, or our

share of the rents that might be achieved after

the--looking at that chart, that 60-month lease

in the case of the Burroughs equipment, the 37month in the First Computer, and the--whatever

the other one is in the case of the foreign

equipment, at the end of that, the possibility

of renting to somebody else after that period

time, or if that--and in addition to that, the

residual, the ultimate opportunity to sell the

equipment itself.

The trustee, Mr. Alan Bernikow, expressed the same idea as

follows:

The only way you can make money in this

deal, when you go through the numbers, and we

went through the numbers pretty quickly, is to

recognize that the re-leasing program was very

important, the value at the end was very

important, because, if you don't have those

pieces, all you have is taxes, that you pay in

early years and you get back--you get in the

early years and you pay back in the later years.

*

*

*

*

*

*

*

We had gone through a due diligence and,

once these numbers hit you, as you go through

this package and recognize that if you believe

in--in the rental incomes and the residual value,

then it became a, what I would call--for the

deals we saw at the time, a very good deal.

- 14 The experts who testified at the first trial on behalf

of each of the parties valued the contingent rents and

residual value of the equipment at the end of the master

leases as follows:

Contingent rent

Residual value

Total

Lyons

Minimum

Lyons

Maximum

Blumenthal

$659,363

8,135

$925,877

470,074

$417,179

10,000

667,498

1,395,951

427,179

We adopted the view of respondent's expert, Mr. S. Paul

Blumenthal, that $427,179 was the maximum amount that would

be recouped by the unitholders.

Accordingly, we found that

they could not recoup their cash payment of $954,000 and,

thus, could not realize an economic profit.

This analysis

is similar to that applied in other court cases.

See

Rice's Toyota World, Inc. v. Commissioner, 752 F.2d 89

(4th Cir. 1985); Estate of Strober v. Commissioner, T.C.

Memo. 1992-350; Mele v. Commissioner, T.C. Memo. 1988-409;

Dobbs v. Commissioner, T.C. Memo. 1987-361.

There are several aspects of the testimony of

petitioners' expert, Mr. Esmond C. Lyons, Jr., that should

be noted.

First, the aggregate minimum economic benefit,

$667,498, and the aggregate maximum economic benefit,

$1,395,951, are both substantially less than the economic

benefit set forth in the Projections that accompanied the

- 15 Investment Memorandum (reproduced as appendix B hereto),

summarized as follows:

Contingent rent

Residual value

Total

Projections

20%

Projections

25%

Projections

30%

$914,175

930,671

$914,175

1,163,338

$914,175

1,396,006

1,844,846

2,077,513

2,310,181

Second, the minimum residual value of the equipment

determined by petitioners' expert, $8,135, is less than

the residual value determined by respondent's expert,

$10,000.

In Robertson I, we also found that there was "a

complete lack of business purpose" for the transaction.

In that connection, we noted that petitioners and the

other unitholders "were partners and principals in a

major accounting firm * * * [and] Petitioner, as well as

other unitholders, had extensive experience with leasing

transactions."

Thus, we found that petitioner and the

other unitholders "should have understood that they were

agreeing to a grossly inflated price for their limited

interest in this equipment."

As stated above, the issue to be resolved in this

proceeding is whether the expert testimony presented on

petitioners' behalf during the second trial, together with

petitioners' arguments, convince us that we were mistaken

- 16 in Robertson I and that we should hold that petitioners are

not liable for the additions to tax under sections 6653(a)

and 6661.

Petitioners' arguments require an analysis of

the Appraisal of the subject computer equipment furnished

by Mr. John R. Wilkins, president, Communigraphics, Inc.,

dated December 14, 1982, the Projections that were

furnished to the unitholders, the Tax Opinion rendered by

Austrian, Lance & Stewart, and the Investment Memorandum.

The Appraisal

Mr. Wilkins' appraisal is broken into five sections:

I. Scope of Study; II. Industry Background; III. Valuations; IV. Exhibit A:

Equipment Appraised; and V.

Background & Qualifications of John R. Wilkins.

The

"Equipment Appraised" section consists of four exhibits,

lettered A through D, which enumerate each item of computer

equipment and state the manufacturer's list price for each.

Set out below is a description of the equipment appraised

as set forth in IV. Exhibits A through D:

Exhibit A: Burroughs Wellcome

Quantity

Unit

Model

Description

IBM List Price

1

1

1

1

IBM 3081

IBM 3082

IBM 3087

IBM 3278

D16

16

1

A02

Central Proces

Processor Cont

Coolant Dist. U

Console

$3,260,000

220,000

60,000

2,505

3,542,505

- 17 Exhibit B: Du Pont de Nemours (Deutschland) GmbH

Quantity

Unit

Model

Description

IBM List Price

2

IBM 4341

L01

Central Proces

450,000

450,000

Exhibit C: Du Pont de Nemours (Deutschland) GmbH

Quantity

Unit

Model

Description

IBM List Price

2

1

6

3

2

4

IBM 3350

IBM 3350

IBM 3350

IBM 3350

IBM 3803

IBM 3420

A02

A2F

B02

B2F

2

8

Disk Drive

Disk Drive

Disk Drive

Disk Drive

Tape Control

Tape Drive

83,200

51,910

197,640

129,750

68,860

110,380

641,740

Exhibit D: First Computer Corp.

Quantity

Unit

Model

1

CDC 38340

2

2

6

CDC 33502

CDC 33502

A2

B2

Description

Controller

w/2 Channel Sw.

Disk Drive

Disk Drive

CDC List Price

---418,891

Grand total

5,053,136

We note that the Roscrea Trust allegedly agreed to purchase

the equipment for $5,170,392.

The "Valuations" section of the appraisal, the most

significant portion of the document for our purposes and

the one that we refer to herein as the Appraisal, states

as follows:

- 18 III.

Valuations

BURROUGHS WELLCOME COMPANY

DU PONT DE NEMOURS (DEUTSCHLAND) GmbH

FIRST COMPUTER CORPORATION

The IBM 3081 and 4341 Central Processors and the IBM and

Control Data Corporation disk are the latest model in their

price and capacity ranges, and should have an economic life of

not less than twelve years.

Below is the anticipated residual value for the equipment

described in Exhibits A-D upon the expiration of the initial

user lease term and upon the expiration of 96 months:

March, 1987 (Exh A)

- $1,062,751

November, 1986 (Exh B) 179,800

November, 1985 (Exh C) 261,855

June, 1985 (Exh D)

188,502

The user leases are for 52 months at a rental of $92,676

per month (at a 16% debt interest rate) for Exhibit A; for 47

months at a rental of $8,659 per month (at a 12% assumed debt

rate and a currency conversion rate of 2.496) for Exhibit B; 35

months at a rental of $10,375 per month (at a 12% assumed debt

rate and a currency conversion of 2.496) for Exhibit C; and

for 31 months at $7,500 per month (at a 16.75% debt rate) for

Exhibit D. The present value of the user lease is $4,331,327.

In our opinion, the assessed value of the equipment

described in Exhibit A [sic] should be the sum of the present

value of the user lease plus the present value of the residual

value of such equipment upon expiration of the initial user

lease term. We have discounted such residual value at 16% and

calculated the appraised value as follows:

Present value, user lease:

$4,331,327

Present value, residual:

March, 1987 (Exh A)

- $519,763

November, 1986 (Exh B) - 112,763

November, 1985 (Exh C) - 181,205

June, 1985 (Exh D)

- 122,657

Sum of present values:

$5,267,715

Since the sum of the Present Values exceeds the Acquisition Cost of the equipment, we will limit the appraisal to such

Acquisition Cost.

Appraised Value:

$5,170,392

Respectfully submitted,

John R. Wilkins

President

Communigraphics, Inc.

- 19 It is readily apparent that the Appraisal is similar

to another appraisal prepared by Mr. Wilkins that was in

issue in Mele v. Commissioner, T.C. Memo. 1988-409.

The

appraisal in that case is virtually identical to the

Appraisal at issue in this case, and it is worthwhile to

compare the two.

In that case, we described Mr. Wilkins'

appraisal as "a summary of conclusory assertions [that]

provides no substantial basis for measuring the soundness

of projected residual values."

Id.

We also stated that

"on its face Wilkins' appraisal was not a document worthy

of reliance * * * [because it] is nothing more than a

listing of unsupported conclusions as to the Equipment's

value."

Id.

The same is true in the instant case, but there are

also glaring errors in Mr. Wilkins' Appraisal in this case

that are apparent on its face and make reliance on it

unreasonable.

First, the second paragraph of the Appraisal

states that there is set forth "the anticipated residual

value for the equipment described in Exhibits A-D upon the

expiration of the initial user lease term and upon the

expiration of 96 months".

To the contrary, however, the

Appraisal provides only one set of values and makes no

clear statement about whether the values provided are the

residual values of the equipment upon expiration of the

- 20 initial user leases or the residual values of the equipment

upon expiration of the 96-month term of the master leases.

Presumably, Mr. Wilkins did not intend to say that the

residual value of the equipment is the same on both dates.

Each of the values set forth in paragraph 2 of the

Appraisal is accompanied by a month and year which appear

to be the month in which each of the initial user leases

terminates.

From that, we assume that the values set out

in paragraph 2 are the "residual" values of the equipment

upon the expiration of the initial user leases.

Thus, it

appears that the Appraisal fails to provide residual values

for the equipment upon expiration of the 96-month terms of

the master leases.

By failing to set forth the residual value of the

equipment upon expiration of the master leases, it is

evident that Mr. Wilkins' Appraisal is based on a mistaken

premise and is wrong.

After setting forth the anticipated

"residual" values of the equipment upon expiration of the

initial user leases, Mr. Wilkins discounts those values in

order to arrive at their present value in 1982, as follows:

Present value, residual:

Mar. 1987 (Exh A) - $519,763

Nov. 1986 (Exh B) - 112,763

Nov. 1985 (Exh C) - 181,205

June 1985 (Exh D) - 122,657

Total

936,388

- 21 To that amount, Mr. Wilkins adds the present value of the

payments due under the initial user leases, $4,331,327, to

arrive at the aggregate present value of the equipment,

$5,267,715, an amount slightly in excess of the alleged

acquisition cost of the equipment, $5,170,392.

Thus, the

premise of the Appraisal is that the fair market value of

the equipment sold to the Roscrea Trust is equal to the

present value of the payments due under the initial user

leases, $4,331,327, plus the aggregate present value of the

residual values of the equipment upon the expiration of

the initial user leases, $936,388.

However, upon expiration of each of the initial user

leases, the computer equipment covered by that lease

remained subject to one of the two master leases, and the

unitholders could do nothing with that equipment until

expiration of the master leases in 1990, other than to

share with Equilease, the lessee under the master leases,

any contingent rents realized.

Thus, in view of the fact

that all of the equipment is subject to one of the two

master leases, the Appraisal is wrong in valuing the

equipment at the expiration of the initial user leases.

Significantly, there is no evidence in the record that

petitioners, the Trustee, or any of the other unitholders

raised an issue with the seller of the equipment, the

- 22 appraiser, or any other person about the fact that the

Appraisal is wrong on its face.

Furthermore, the failure of the Appraisal to set forth

the residual value of the equipment upon expiration of the

master leases is a serious omission because, as discussed

above, the economic return on the investment to the

unitholders depends primarily upon the residual value of

the equipment at that time and not upon expiration of the

initial user leases.

As petitioner testified:

the only way to make a profit in this transaction, is to sell the Equipment at the end of

the lease term [in 1990]; and that's what I was

trying to do in becoming an investor in Roscrea

Trust.

Before expiration of the master leases in 1990, the

unitholders could receive fixed rents, equivalent in amount

to the payments that the trust was obligated to make under

the Trust Note, and a share of contingent rent.

They could

not realize the residual value of the equipment until after

expiration of the 96-month master leases.

By failing to

provide the residual value of the equipment upon expiration

of the master leases, the Appraisal is of limited assistance in computing the economic return on the investment

to the unitholders.

Once again, there is no evidence in

the record that petitioners, the Trustee, or any of the

- 23 other unitholders raised an issue with the seller of the

equipment, the appraiser, or any other person about the

failure of the Appraisal to provide the residual value

of the equipment at the expiration of the master leases.

We note other errors in the Appraisal.

As stated

therein, the residual values of the equipment upon

expiration of the initial user leases are discounted "at

16%" in order to obtain the present values.

In reviewing

those computations, we noted two inconsistencies.

Our

computations are set forth below:

Exh A

Exh B

Exh C

Exh D

"Residual"

Value

Months

Interest

Rate

Present

Value

$1,062,751

179,800

261,855

188,502

54

47

37

31

16.00%

12.00

12.00

16.75

$519,763

1

112,638

181,205

122,657

1,692,908

936,263

1

This amount is $125 more than the amount in the

appraisal, $112,763, which we were not able to duplicate.

From the above, the first inconsistency is that Mr. Wilkins

used three interest rates in discounting the "residual"

values at the expiration of the initial user leases, 16,

12, and 16.75 percent (referred to in the Appraisal as debt

interest rate or assumed debt rate), rather than the single

rate of 16 percent.

The second inconsistency is that

- 24 Mr. Wilkins used 54 months rather than 52 months and 37

months rather than 35 months for the number of months

remaining before expiration of the initial user leases

for Exhibits A and C, respectively.

Projections

The record contains two sets of financial projections

that purport to summarize possible investment results to

the Trust, one set dated December 10, 1982, reprinted

herein as appendix A, and a second set dated December 16,

1982, reprinted herein as appendix B.

We refer to either

set or both sets as the Projections.

The Projections

dated December 10, 1982, were reviewed by petitioner and

are described in Robertson I.

The Projections dated

December 16, 1982, were included as an attachment to the

Investment Memorandum.

Both sets of Projections convey essentially the same

information.

They show that income would flow to the Trust

from three sources:

Rental income, referred to as fixed

rent in the master leases, to be paid by Equilease over

the 8-year term of the master leases; additional income,

referred to as contingent rents in the master leases, to be

derived from re-leasing the equipment after expiration of

the initial user leases; and the "sale proceeds" from the

sale of the equipment after expiration of the master

- 25 leases.

As mentioned above, the fact that the quarterly

payments under the Trust Note equaled the fixed rent to be

paid by Equilease meant that the Trust's income was

effectively limited to two sources:

(1) The Trust's share

of contingent rents and (2) the proceeds from the sale of

the computer equipment at the end of the 96-month master

leases.

The Projections show the cumulative after-tax benefit

to the Trust on an aggregate basis assuming that the Trust

realized additional income from contingent rents through

the end of 1990 in the aggregate amount of $914,175 and

further realized the proceeds from the sale of the computer

equipment at the expiration of the master leases in the

amounts set forth.

For example, if the Trust realized sale

proceeds amounting to 20, 25, or 30 percent of original

cost of the equipment less a 10-percent sales commission

(i.e., $930,671, $1,163,333, or $1,396,006, respectively),

the Projections dated December 16, 1982, show that the

Trust would realize in 1990 a cumulative after-tax benefit

of $950,507, $1,072,657, and $1,194,808, respectively.

Significantly, the forecasted sale proceeds used in

the Projections are not based upon Mr. Wilkins' Appraisal

or on the appraisal of any other independent appraiser.

At the first trial, Mr. Scott Binder, who prepared the

- 26 Projections on behalf of the seller, could not explain why

the anticipated sale proceeds of the equipment in 1990 are

not set forth in the Appraisal, as was normally the case.

Mr. Binder testified as follows:

Q.

Now with respect to the line that says Sales

Proceeds, where was that number or those

numbers derived from?

A.

I think the first number, the 20-percent

number, comes from the appraisal.

Because there is a possibility that it would

be worth more and a possibility that it

would--let me just see.

He normally gave the estimated value.

[Pause.]

THE WITNESS: I can't find it in here.

Normally that was based on his-MR. WINNINGHAM: Your Honor, could we ask

what document the witness is referring to?

THE WITNESS:

7-G [the Appraisal].

MR. WINNINGHAM:

7-G, thank you.

[Pause.]

THE WITNESS: I can't find it but it is

supposed to be and it was based on appraisal

at 20 percent and he somewhere comments I

think that that's a fair number but anyway

that's my answer--that it's based on Jack

Wilkins.

Even more significantly, there is a critical

discrepancy between the value of the computer equipment

- 27 used in the Projections and the value computed by the

Appraisal.

According to Mr. Wilkins' Appraisal, the

"present value" of the computer equipment in 1982 is

$936,388.

On the other hand, the Projections assumed

that, if the equipment were sold in 1990 at the end of the

96-month master leases, the proceeds from the sale would

be $930,671, $1,163,338, or $1,396,006.

Clearly, if the

proceeds from the sale of the equipment in 1990 are

$930,671, $1,163,338, or $1,396,006, as contemplated in the

Projections, then the equipment could not be worth $936,388

in 1982, as Mr. Wilkins opined in his Appraisal.

If we

discount the three sale proceeds used in the Projections at

16 percent, the present values of the sale proceeds in 1982

are $260,959.20, $326,198.79, and $391,438.66.

Thus, there

is a significant discrepancy between the value of the

equipment as determined by Mr. Wilkins and the value of the

equipment assumed in the Projections.

There is no evidence

in the record that petitioners, the Trustee, or any of the

other unitholders raised an issue about this discrepancy

between the value of the equipment in the Projections and

the Appraisal.

In passing, we note that the Projections contain a

footnote D which states:

"At zero residual value the

cumulative benefit amounts to 461905."

In the Projections

- 28 reprinted herewith as appendix B, we have added a column

entitled "1990(D)" which shows the computation of that

amount.

We also note that there is no evidence that any

of the unitholders considered the after-tax return to the

Trust assuming that the Trust realized no contingent rents

or proceeds from the sale of the equipment upon expiration

of the master leases.

Tax Opinion

Petitioner and the other unitholders claim to have

negotiated for and relied upon the Tax Opinion letter

written by Austrian, Lance & Stewart to the Trustee that

was attached as an exhibit to the Investment Memorandum.

The Tax Opinion states that, in the opinion of Austrian,

Lance & Stewart, "it is more likely than not that":

(1)

The Trust will be classified as a trust for Federal income

tax purposes; (2) the master leases should not preclude the

unitholders from being considered the owners of the equipment; (3) the unitholders' aggregate income tax basis in

the computer equipment will be its purchase price

represented by the cash downpayment and the face amount of

the Trust Note; and (4) each unitholder will be "at risk"

in an amount equal to his contributions when made plus the

share of the Trust Note for which he is personally liable.

- 29 In rendering their opinion, Austrian, Lance & Stewart

relied heavily upon the Appraisal prepared by Mr. Wilkins,

described above.

For example, the Tax Opinion relies upon

the Appraisal for the proposition that "the current fair

market value of the Equipment is at least equal to the

purchase price to be paid by the Trust".

The Tax Opinion

also relies upon the Appraisal for the proposition that the

equipment "should have a value at the end of the terms of

the [Master] Leases (the 'residual value'), without regard

to inflation, equal to or exceeding 20 percent of its

cost."

Austrian, Lance & Stewart recite these facts in

connection with their assumptions and representations at

the beginning of the Tax Opinion in the following passage:

Seller has provided the Trustee with a

projection with respect to the present and

anticipated future value of the Equipment (the

"Appraisal") prepared by Communigraphics, Inc.

(the "Appraiser"). The Appraiser believes that

the current fair market value of the Equipment is

at least equal to the purchase price to be paid

by the Trust and will exceed the aggregate amount

of the Trust Note and that the Unitholders can

expect the Equipment to have a useful life

extending beyond the terms of the Leases and that

it should have a value at the end of the terms of

the Leases (the "residual value"), without regard

to inflation, equal to or exceeding 20 percent of

its cost. We are aware, however, that the data

processing industry has been and is likely to

continue undergoing rapid technological advances,

some of which may substantially depress the

economic value of the Equipment and limit its

useful life. We note specifically that the terms

of the Leases, 96 months, is longer than most

- 30 leases of such equipment and may indicate that

the anticipated residual value will not be

realized. In this regard, we have assumed that,

as set forth in the Subscription Agreement, each

of the Unitholders is investing in the Trust with

a reasonable expectation of making a profit from

his investment. For purposes of the analysis

that follows, we have assumed that the Appraisal

is reasonable given all the facts and circumstances. [Emphasis added.]

The fact that "the current fair market value of the

Equipment is at least equal to the purchase price to be

paid by the Trust" is essential to Austrian, Lance &

Stewart's "understanding" concerning the reasonableness

of earning an "economic profit" from the transaction as

set out in the Tax Opinion as follows:

"It is our under-

standing that: * * * (ii) the Unitholders can reasonably

expect to earn an economic profit from the Transaction

based upon the Appraisal and the anticipated cash flow

during and after the terms of the Lease".

This fact is

also essential to Austrian, Lance & Stewart's conclusion

that the amount of the Trust Note will be included in the

unitholders' basis in the equipment, expressed in the Tax

Opinion in the following passage:

Based upon our review of the proposed

documents set forth above and our reliance upon

the Appraisal indicating the fact that the

Equipment will be sold by Seller for an amount

not in excess of its then fair market value, we

do not believe that there is a reasonable basis

for concluding that the Service could successfully apply the principles of Marcus, May or the

- 31 Revenue Rulings to the Trust's indebtedness on

the Trust Note to Seller.

*

*

*

*

*

*

*

In contrast to the facts in Franklin, (i)

the Unitholders will be personally obligated to

pay the Trust Note, (ii) the Transaction will

generate cash flow, if Additional Rent is paid,

to the Trust and, therefore, to the Unitholders,

(iii) the Trust Note will require no lump sum

payments in the event of a default thereunder,

in order completely to amortize the principal and

(iv) in the opinion of the Appraiser, the fair

market value of the Equipment when purchased

will not be less than its purchase price and the

estimated residual value of the Equipment at the

end of the Leases could be expected to be at

least 20 percent of the purchase price.

[Emphasis added.]

As discussed above, however, it is apparent from the

face of the Appraisal that the value determination made by

the Appraisal is wrong.

It is based upon the present value

of the aggregate residual values of the equipment upon the

expiration of the initial user leases, rather than upon the

expiration of the 96-month master leases.

Accordingly, the

Appraisal cannot reasonably be relied upon to establish the

fact that "the fair market value of the Equipment when

purchased will not be less than its purchase price."

Second, the fact that the equipment "should have a

value at the end of the terms of the [Master] Leases (the

'residual value'), without regard to inflation, equal to

or exceeding 20 percent of its cost" is one of the key

- 32 factors on which Austrian, Lance & Stewart based their

opinion that the unitholders would be considered the owners

of the equipment.

Furthermore, it is an important fact in

Austrian, Lance & Stewart's opinion that the Trust Note

would be included in the unitholders' basis in the equipment.

However, as discussed above, Mr. Wilkins fails to

set forth the residual value of the computer equipment as

of the end of the master leases in the Appraisal.

Third, the Tax Opinion relies upon the Appraisal to

establish "the anticipated cash flow during and after the

term of the [Master] Lease."

In addressing the issue of

whether the unitholders would be considered the owners of

the equipment, the Tax Opinion discusses whether the lease

transaction would be recharacterized as a conditional sale

of the equipment to the lessee or whether the Trust had

retained a sufficient interest in the leased equipment to

entitle it to depreciation deductions.

In concluding that

the leases "should not preclude the unitholders from being

considered the owners of the Equipment", the Tax Opinion

states the following as one of six factors on which that

conclusion is predicated:

the decision to acquire the Equipment has been

made in reliance upon the Appraisal from an

expert of the view that the Equipment would have

a useful life beyond the end of the [Master]

- 33 Leases and have a residual value of not less

than 20 percent of the purchase price.

In that connection, the Tax Opinion further states as

follows:

The Trustee anticipates receiving no positive

cash flow during the initial term of the User

Lease, additional cash flow thereafter depending

upon receipt of any Additional Rent, which cannot

be anticipated but may be significant. Upon

expiration of the [Master] Lease [sic], the

Equipment will be owned free and clear of all

debt and the Appraisal anticipates the Unitholders deriving a cash flow thereafter.

However, the Appraisal does not discuss the anticipated

cash-flow from the computer equipment after expiration of

the 96-month master leases.

Finally, the Tax Opinion relies upon the Appraisal

to conclude that the equipment will have "a useful life

extending beyond the terms of the [Master] Leases".

Throughout the Tax Opinion, Austrian, Lance & Stewart note

the importance of the useful life of the equipment in view

of the 96-month terms of the master leases which "is longer

than most leases of such equipment and may indicate that

the anticipated residual value will not be realized."

However, the only statement in the Appraisal that can be

construed as addressing the "useful life" of the subject

equipment is the following:

"The IBM 3081 and 4341 Central

- 34 Processors and the IBM and Control Date [sic] Corporation

disk are the latest model in their price and capacity

ranges, and should have an economic life of not less than

twelve years."

This statement concerning the "economic

life" of the equipment is not formulated in terms of

Mr. Wilkins' considered opinion but appears to be an offhand conclusory comment without anything to support it.

In summary, therefore, the Tax Opinion relies upon the

Appraisal without question, even though there are glaring

errors that are evident on the face of the Appraisal and a

discrepancy between the value of the equipment in the

Appraisal and in the Projections.

The Tax Opinion also

relies upon the Appraisal to establish facts, such as the

residual value of the equipment upon expiration of the 96month master leases, and the cash-flow from the equipment

upon the expiration of the master leases, that are not

stated in the Appraisal.

Finally, the Tax Opinion relies

upon the Appraisal to establish the "useful life" of the

equipment, even though the statement in the Appraisal

regarding the "economic life" of the equipment does not

define the term "economic life" and appears to be an offhand comment, rather than the considered opinion of the

appraiser.

- 35 Investment Memorandum

Like the Tax Opinion, the Investment Memorandum relies

upon the Appraisal's determination of the residual value of

the equipment at the termination of the master leases even

though the Appraisal does not provide such a value.

For

example, the Investment Memorandum states as follows:

Based on the prices being paid for new and used

data processing equipment and the terms of the

end-user leases thereof, an appraisal by

Communigraphics, Inc. which has been furnished

by Seller projects that the Equipment will have

value at the termination of the [Master] Leases

more than sufficient to return to an investor

his capital contribution to the Trust. * * *

Similarly, the Investment Memorandum states as follows:

Unitholders are urged to review the Appraisal

attached hereto as Exhibit E, which concludes

that the Equipment will have a market value of

not less than 20% of cost at the end of the

terms of the [Master] Leases. There is, however, no assurance that such value will exist

or be realized at that time. (See "Equipment

Appraisal--Exhibit E".)

These statements from the Investment Memorandum are

obviously wrong and raise a red flag to any prudent

investor reviewing the Investment Memorandum.

The Investment Memorandum also relies upon the

Appraisal for the proposition that the fair market value

of the equipment in 1982 is equal to the price paid by the

- 36 Trust.

For example, the Investment Memorandum states as

follows:

The Trustee has received an appraisal that

the fair market value of the Equipment as of

December 14, 1982, is $5,170,392.00, which

exceeds the amount of the Trust Note. The debt

will be includible in the basis of each Unitholder to the extent of his liability therefor,

but if the IRS should determine that the fair

market value of the Equipment is less than its

purchase price, the basis of the Unitholders in

the Equipment would not include any part of the

Trust Note. The Unitholders' anticipated tax

losses would be reduced almost entirely or

totally eliminated.

The Tax Opinion concludes that it is more

likely than not that the Trust Note will be

includible in the Unitholders' basis in the

Equipment, but that opinion is based upon the

opinion expressed in the Appraisal that the fair

market value of the Equipment exceeds the amount

of the Trust Note.

Similarly, the Investment Memorandum states as follows:

"The appraisal indicates that the fair market value of the

Equipment as of December 14, 1982, exceeds the face amount

of the Trust Note but there can be no assurance that such

valuation will not be challenged by the IRS.

* * *"

The Investment Memorandum also warns that investors

must be able to demonstrate that the fair market value of

the computer equipment is at least equal to the purchase

price, because, otherwise, "the IRS could disallow all of

the deductions expected to be available to him, including

depreciation and interest on the Trust Note, on the theory

- 37 that the Trust and the Unitholders do not have a depreciable interest in the Equipment and that the indebtedness has

no economic significance."

Notwithstanding the importance

of this issue, however, the Investment Memorandum relies

solely on the Appraisal to establish the fair market value

of the equipment, despite the obvious errors in the

Appraisal and the discrepancies between the Appraisal and

the Projections.

Finally, the Investment Memorandum relies upon the

Appraisal to establish the "useful life" of the equipment,

as follows:

Further, the Appraisal indicates that the

Equipment will have a residual value sufficient

for the Unitholders to realize a profit and that

the Equipment will have a useful life in excess

of the terms of the [Master] Leases.

The Investment Memorandum notes that the useful life of the

equipment is especially important because "the 96 month

term of the [Master] Leases may be challenged by the IRS as

being for a term which is substantially all of the useful

life of the Equipment."

Nevertheless, as discussed above,

the Appraisal merely states that the computer equipment

"should have an economic life of not less than 12 years"

and fails to define the term "economic life".

- 38 Section 6653(a)(1) and (2)

Robertson I held petitioners liable for the additions

to tax under section 6653(a)(1) and (2) that were

determined by respondent in the notice of deficiency.

Petitioners bear the burden of proving that respondent's

determination of negligence is wrong.

See Rule 142(a);

Hansen v. Commissioner, 820 F.2d 1464, 1469 (9th Cir.

1987).

Section 6653(a)(1) imposes an addition to tax equal

to 5 percent of the underpayment if any part of any underpayment is due to negligence or intentional disregard of

rules or regulations.

For purposes of this section,

negligence is defined as the "lack of due care or failure

to do what a reasonable and ordinarily prudent person would

do under the circumstances."

Neely v. Commissioner, 85

T.C. 934, 947 (1985) (quoting Marcello v. Commissioner, 380

F.2d 499, 506 (5th Cir. 1967), affg. in part and remanding

in part per curiam T.C. Memo. 1964-299).

Section 6653(a)(2) imposes an additional amount "equal

to 50 percent of the interest payable under section 6601

* * * with respect to the portion of the underpayment

described in paragraph (1) which is attributable to

* * * negligence".

This addition applies to "the period

beginning on the last date prescribed by law for payment

- 39 of such underpayment * * * and ending on the date of the

assessment of the tax".

Sec. 6653(a)(2)(B).

Section 6661

Robertson I also held petitioners liable for the

addition to tax under section 6661 that was determined by

respondent in the notice of deficiency.

Petitioners bear

the burden of proving that respondent's determination is

wrong.

See Rule 142(a).

Section 6661(a) provides that, if there is a

"substantial understatement of income tax", there shall

be added to the tax an amount equal to 25 percent of any

underpayment attributable to such understatement.

An

"understatement" is the amount by which the tax required

to be shown on the return for the taxable year exceeds the

amount of tax shown on the return.

Sec. 6661(b)(2)(A).

An understatement is substantial if it exceeds the greater

of 10 percent of the tax required to be shown on the return

or $5,000.

See sec. 6661(b)(1)(A).

As determined in

Robertson I, the understatement of tax in this case,

$16,135, is greater than both of those amounts.

Generally, the amount of the understatement is reduced

by that portion of the understatement which is attributable to the tax treatment of any item if there is or was

substantial authority for such treatment, or the tax

- 40 treatment of any item with respect to which the relevant

facts affecting the item's tax treatment are adequately

disclosed in the return or in an attached statement.

sec. 6661(b)(2)(B).

See

In the case of a tax shelter, however,

the reduction for adequate disclosure does not apply, and

the reduction based upon substantial authority for the

treatment of the item does not apply unless the taxpayer

reasonably believed at the time the return was filed that

the tax treatment claimed "was more likely than not the

proper treatment."

Sec. 6661(b)(2)(C)(i).

A taxpayer can

establish such a reasonable belief if the taxpayer in good

faith relies on the opinion of a professional tax adviser

that unambiguously states that the tax adviser "concludes

that there is a greater than 50-percent likelihood that the

tax treatment of the item will be upheld in litigation if

the claimed tax treatment is challenged by the Internal

Revenue Service."

Sec. 1.6661-5(d)(2), Income Tax Regs.

Therefore, in the case of an understatement attributable to

a tax shelter, a taxpayer must prove that:

(1) There was

substantial authority for the tax treatment of an item; and

(2) the taxpayer reasonably believed that the tax treatment

of an item was more likely than not the proper treatment.

See sec. 6661(b)(2)(C)(i); Mele v. Commissioner, T.C. Memo.

1988-409.

- 41 Petitioners argue that the Court should vacate that

portion of Robertson I relating to the additions to tax

under sections 6653(a) and 6661 and hold that petitioners

are not liable for those additions to tax.

As to the

additions under section 6653(a)(1) and (2), petitioners

assert that the Court should hold that petitioners are

not subject to liability under those provisions because:

(1) Petitioners reasonably relied in good faith on the Tax

Opinion contained in the Investment Memorandum and on the

tax advice of one of their partners, Mr. Gerver; (2) they

"conducted an independent evaluations [sic] [of the

investment] that corroborated the information provided in

the memorandum, the Projections, and the Appraisal"; (3)

the information provided to petitioners and the other

unitholders reasonably could not have been expected to

suggest that the unitholders did not have a reasonable

prospect of qualifying for the expected tax consequences

of the transaction; and (4) at the time they entered into

the investment there was a substantial market for equity

investments in computer equipment leasing transactions with

many offering tax benefits exceeding those anticipated from

the investment in issue.

As to the additions to tax under section 6661, petitioners assert that the Court should hold that petitioners

- 42 are not subject to liability under that provision for two

reasons.

First, petitioners argue that the amount of the

"understatement" should be reduced by the entire understatement because petitioners satisfied the substantial

authority and reasonable belief requirements of section

6661(b)(2)(B) and (C).

To establish substantial authority

and reasonable belief, petitioners rely on the same

arguments, summarized above, that they advanced to show

that they are not liable for the negligence additions under

section 6653(a)(1) and (2).

Second, petitioners maintain

that they meet the standards for waiver of the addition to

tax under section 6661(c), which provides that the

Secretary may waive all or any part of the section 6661

addition if the taxpayers prove that there was reasonable

cause for the understatement and they acted in good faith.

Finally, as to the additions to tax under both

sections 6653(a) and 6661, petitioners argue that the Court

should vacate those portions of our opinion relating to

additions to tax under sections 6653(a) and 6661 because

the Court's holding that the investment did not have

economic substance was based upon the novel theory that

petitioners acquired a limited or partial interest, rather

than an entire ownership interest, in the computer

equipment.

- 43 In their testimony, petitioner and the other unitholders paint a picture of a close-knit group of partners

in a major national accounting firm joining together to

investigate and negotiate an investment in computer

equipment that was the subject of the sale-leaseback

transaction described above.

Under this view of the facts,

one of petitioner's fellow unitholders, Mr. James Crumlish,

negotiated the terms of the purchase of the computer

equipment, including an appraisal of the equipment by an

independent appraiser and a tax opinion.

Petitioner and

his fellow unitholders then relied upon the professional

expertise of various members of the group to "corroborate"

the economic benefits and tax consequences of the

investment described in the Investment Memorandum,

Appraisal, Projections, and Tax Opinion.

Petitioners argue that they relied upon the Tax

Opinion supplied by the seller, the tax advice of

Mr. Gerver, and the expertise of other partners of the

accounting firm, such as Messrs. William Atkins and Charles

Biggs.

Petitioners assert that Messrs. Atkins and Biggs

were responsible for reviewing and corroborating the value

and the useful life of the computer equipment to be

purchased, and that Mr. Gerver and others were responsible

for reviewing the Tax Opinion and corroborating the tax

- 44 consequences of the transaction.

Petitioners argue that

nothing in the Investment Memorandum, Tax Opinion,

Projections, or Appraisal should have caused petitioners

or any of the unitholders to doubt the reasonableness of

their expectation of profit from the transaction.

In fact,

according to petitioners, the subject transaction offered

fewer tax benefits than those offered by other computer

leasing transactions at the time.

Furthermore, according

to petitioners, an investor would not have entered into the

subject investment solely for tax purposes because the

investor would suffer a loss if there were no contingent

rents or proceeds from the sale of the equipment.

We are unable accept petitioners' view of the facts

for the following reasons.

First, as discussed above,

our review of the Appraisal, Projections, Tax Opinion,

and Investment Memorandum shows that there are serious

questions that would have been evident to a reasonable

investor reviewing those documents.

For example, among

other things, an investor would have certainly questioned

the fact that the Appraisal fails to provide the residual

value of the equipment upon expiration of the master

leases, the fact that there is a discrepancy between the

value of the computer equipment determined by the Appraisal

and the value used in the Projections, and the fact that

- 45 the Tax Opinion states that it relies upon the Appraisal

regarding the residual value of the equipment and cashflow therefrom on or after the end of the master leases,

despite the failure of the Appraisal to provide any such

determination.

Considering the problems that we noted in

the documents relating to this transaction, which are

described above, we do not believe that it would be

reasonable for an investor to rely on the Tax Opinion,

nor do we believe that an investor who did so would be

acting in good faith.

See Mele v. Commissioner, T.C.

Memo. 1988-409.

Second, according to the testimony of petitioner

and five other unitholders, at least 10 partners of the

accounting firm were actively involved in analyzing the

Investment Memorandum and the other documents relating to

the subject investment.

Mr. Crumlish also testified that

"associates" of the accounting firm were involved in

"looking at the projections and making sure that those

projections were, you know, properly calculated and that

the assumptions weren't unreasonable and that type of

thing."

Notwithstanding that alleged scrutiny by

sophisticated accountants and lawyers, none of the unitholders who testified at the first trial detected any

of the problems with the Appraisal, the Tax Opinion,

- 46 the Projections, or the Investment Memorandum that are

described above.

None of the unitholders noted the fact

that the Appraisal fails to set out the residual value of

the computer equipment at the expiration of the master

leases and incorrectly values the equipment using the

"residual value" of the equipment upon the expiration of

the initial user leases.

None of the unitholders noted the

discrepancy between the value of the computer equipment

determined in the Appraisal and the value of the equipment

used in the Projections.

None of the unitholders noted the

fact that the Tax Opinion relies upon the Appraisal to

establish the fact that the amount paid by the Trust for

the computer equipment was the fair market value of the

equipment despite the obvious errors in the Appraisal.

Even more significant, none of the unitholders noted the

fact that the Tax Opinion relies upon the Appraisal to

establish facts that are not stated in the Appraisal,

such as the residual value of the computer equipment upon

expiration of the master leases and the cash-flow from

the equipment after expiration of the master leases.

We are simply unable to credit much of the testimony

of petitioner and his fellow unitholders regarding their

alleged "independent evaluation" of the subject investment.

We do not believe that petitioner and his fellow

- 47 unitholders could have given the Investment Memorandum

and related documents the level of scrutiny to which they

testified without noting the problems described above.

Third, there are numerous inconsistencies in the

testimony of petitioner and his fellow unitholders.

For

example, Mr. Crumlish testified that, in his negotiations

with the seller, he insisted upon receiving an independent

appraisal of the equipment because of the importance of

the residual value of the equipment.

Mr. Crumlish also

testified that the group "relied" on the Appraisal.

We

find it hard to believe that Mr. Crumlish, having

negotiated with the seller to provide an appraisal, did

not raise an issue with the seller or anyone else about the

missing residual value of the equipment or raise a question

about the discrepancy between the value of the equipment in

the Projections and the Appraisal.

It suggests that the

Appraisal and other documents were merely window dressing.

Mr. Crumlish also testified that he obtained the

Appraisal and provided it to another unitholder,

Mr. Atkins, who had expertise regarding computer equipment.

Surprisingly, Mr. Atkins testified that he "did not confer

with Mr. Crumlish" nor did he send him anything in writing.

Petitioner and his fellow unitholders testified that

they relied upon Messrs. Atkins and Biggs regarding the

- 48 value of the equipment and its useful life.

Generally, we

found the testimony of both Messrs. Atkins and Biggs to be

vague and conclusory.

For example,

Mr. Atkins testified

as follows regarding his review of the Appraisal:

Q.

Mr. Atkins, you said that you reviewed the

offering materials in connection with the

Roscrea Trust, in 1982. Did you look at any

appraisal information that was included with

that material?

A.

There was an appraisal from a company,

Computer Graphics, or computer--something

like that.

Q.

And what was your view of the appraisal that

you received from this company?

A.

I feel that the appraisal was fair, given

the current situation of the equipment.

*

*

*

*

*

*

*

Q.

Did you think it was appropriate to obtain

another appraisal, apart from the appraisal

that had been supplied with the offering

materials?

A.

No.

Q.

Why?

A.

It looked--in my opinion, it looked

reasonable.

Q.

As far as the price of the equipment; what

was your opinion about that?

A.

The--in terms of the price of it, here

again, in my opinion, it looked realistic,

but one of the things about the group that

were investing in this thing, is that I

could seek other opinions, and which I did.

- 49 Q.

Let me just focus on the cost of the IBM

equipment. How did you determine whether

that price was a fair price that was being

paid by the individuals involved in the

Roscrea Trust?

A.

Well, by basically looking at the prices

that were in the--in the appraisal and

generally dealing with what my knowledge was

in the market place, and in conversations

with people.

*

*

*

*

*

*

*

Q.

Just focusing on the pricing for the moment.

Who did you speak with in connection with

that, just with the cost of the equipment?

A.

The cost of the equipment?

Q.

And what was your determination about--view

about the cost of the equipment that was

going to be involved in the Roscrea Trust?

A.

It was reasonable.

*

*

*

*

With Biggs.

*

*

*

Q.

You read the whole investment memo?

A.

I read the investment memo, except for the

part that was a very technical tax piece of

the memo. I did not read that.

Q.

Did you read the appraisal that came along

with the investment memo?

A.

Yes.

Q.

Did you question the appraisal?

A.

Did I question it?

Q.

You took it at face value?

A.

I took it at the value after I applied

my judgment to it, yes.

No.

- 50 Q.

How do you--how did you come to a judgment?

A.

As I've stated on--previously, in looking at

what I think the value of the equipment is

and the value of it being on lease, and the

fact that it was going to be a long-term

lease, that's the value that I placed on it.

Q.

Did you look at any particular documents?

A.

No.

Q.

Reports?

A.

No.

Q.

Did you look at anything, such as the IDC

Services?

A.

No.

Q.

Did you look at any computer economic

residual value services?

A.

No, I didn't.

Q.

Did you look at Gartner Services?

A.

Gartner.

Not at that time.

Mr. Biggs testified that he paid little or no attention to

the Appraisal of the subject equipment.

The subject equipment included a large mainframe, the

IBM 3081, a smaller central processor, the IBM 4341, and

peripheral equipment, such as disk drives, that was

manufactured by Control Data Corp.

Mr. Biggs testified

regarding the useful life of the subject computer equipment

as follows:

- 51 Q.

Sir, you spoke about the particular equipment that you were considering investing in.

Did you reach any conclusions with respect

to the potential useful life of that

equipment?

A.

Well, my conclusions were that the useful

life would be in excess of 10 years for

the equipment that was in question.

Mr. Biggs did not explain whether his judgment regarding

the useful life of the equipment "in excess of 10 years"

applied to each piece of equipment or was an average of

some kind.

began.

He also did not state when the useful life

For example, a 10-year useful life of the IBM 3081

which, according to his testimony, was introduced in 1980

would mean that the end of the useful life was in 1990,

the expiration of the master leases.

This suggests that

the IBM 3081 would have little or no residual value upon

expiration of the master leases.

Similarly, Mr. Atkins testified regarding the

"economic life" of the IBM 3081 as follows:

Q.

Can you put a--Did you determine or have an

opinion about the length of the economic

life that could be forecast for this IBM

equipment; again focusing on the IBM 3081?

A.

I think the 3081 will have a life cycle of

about 10 years in the market place. That

does not mean that all of them sold will be

there 10 years later, but there will be

enough in the market place there. They'll

still be on lease.

- 52 Q.

And this was your view in 1982 I take it?

A.

Right.

Mr. Atkins' opinion regarding the "economic life" of the

IBM 4341 is as follows:

Q.

In 1982, did you have an opinion of the

economic life of the IBM 4341?

A.

The 4341 is more easily replaced and, I felt

confident that at that time, at least

through the life of the lease, it was, it

would be a valuable product.

Mr. Atkins provided no testimony regarding the useful life

of the peripheral equipment manufactured by Control Data

Corp.

Mr. Atkins acknowledged that he did no research in

arriving at his opinion regarding the "economic life" of

the IBM 3081 and the IBM 4341 but based his opinion on his

years of experience.

Furthermore, the testimony of Messrs. Atkins and Biggs

regarding the "economic life" of the equipment does not

corroborate petitioner's testimony that the "useful life"

of the IBM 3081 would range from 10 to 15 years.

Petitioner testified as follows:

Q.

What part, or what did you consider the

economical life of the equipment that you

were acquiring or going to acquire to play

in the decision to invest?

- 53 A.

Atkins and Biggs advised me that the 3081

useful life could be, and would likely be in

the range of 10 to 15 years. So, I believe,

in my mind, I was using 12 years, in my

assessment of what we might realize on the

residuals at the end of the leases.

We cannot find as a fact that petitioners relied

upon tax advice from petitioner's partner, Mr. Gerver.

Mr. Gerver testified as follows:

Q.

Did you write that out, give that in

writing? Did you give the tax opinion in

writing?

A.

If I'm giving an opinion, I have to put it

in writing. An oral opinion, as you know,

isn't worth the paper it's written on.

Q.

Did you give a tax opinion in this case?

A.

To who?

Q.

To Petitioner?

A.

No, we spoke about it. I discussed it with

him and I told him that, from what I could

see, the tax issues were the ones that were

familiar to me, I didn't think that there

was any tax issue that we had to be concerned about that they did not cover, but

they didn't cover such as, for example, the

opinion, as I recall, makes no mention that

this is a transaction entered into for

profit. I said I felt that since that's

where we were going, everything was a

transaction entered into for profit, and I

didn't think we need an opinion to that

effect.

Q.

So you gave nothing to the taxpayer in

writing, is that correct?

A.

No.

- 54 Q.

Did you give a tax opinion to the trust in

this case?

A.

No I wasn't asked for an opinion from the

trust. When I came to the trust it was as

an investor.

Mr. Gerver further testified it was not necessary for him

to render a separate opinion regarding the tax consequences

of the investment because he "felt that everything was

covered more than adequately by the opinion that had been

provided by Austrian."

As we understand Mr. Gerver's testimony, he approached

the subject investment "as an investor" and, while he discussed the investment with petitioner, he did not undertake

to render professional advice to petitioner.

He never put

his analysis of the investment in writing, and the record

does not suggest that petitioner paid Mr. Gerver to advise

him.

Moreover, there is no evidence in the record that

Mr. Gerver raised with petitioner or anyone else the

problems with the documentation of the investment that are

described above.

To the contrary, he testified at trial

that he read the Tax Opinion "carefully" and that he also

read the Appraisal, the Projections, and the Investment

Memorandum.

Despite the obvious problems and questions

that readily appear from a review of these documents,

- 55 problems and questions that should have been obvious to any

one of the unitholders, Mr. Gerver failed to note any of

them.

For this reason, if Mr. Gerver undertook to advise

petitioner, we do not believe that reliance on his advice

would have been reasonable and in good faith.

For the above reasons, we also reject petitioners'

claim that they are not liable for the substantial understatement addition to tax on the ground that they meet the

standard for waiver under section 6661(c).

We do not agree

that they have shown either a "reasonable cause for the

understatement" or that they "acted in good faith."

Sec.

6661(c).

Finally, we do not agree with petitioners' assertion

that the additions to tax under sections 6653(a) and 6661

should not apply "because the Court's holding in Robertson

I is based upon the novel theory that Petitioner acquired

a limited or partial interest, rather than an entire

ownership interest, in the Computer Equipment."

Petitioners fail to recognize that in Robertson I we were

evaluating the economic substance of the transaction in

order to determine whether the transaction was a sham, as

had been determined by respondent.

In that connection,

we noted the limited nature of the interest that had been

acquired by the trust and evaluated the economic substance

- 56 of the transaction accordingly by comparing the cash payment made by the Roscrea Trust, $954,000, with the maximum

amount that the unitholders could expect to recoup,

$427,179.

An analysis similar to our analysis in Robertson I

was made by the Court in Gilman v. Commissioner, T.C.

Memo. 1989-684, affd. 933 F.2d 143 (2d Cir. 1991).

Gilman

involved a sale-leaseback of computer equipment that was

held to lack economic substance.

In holding that the

transaction did not offer a reasonable opportunity for

economic profit exclusive of tax benefits, the Court made

the following analogy:

In essence, petitioner claims to have purchased a

Christmas tree, but actually only purchased the

right to hang some ornaments on a tree that was

already in place and serving its full useful and

economic purpose, and to take possession of the

tree after the Christmas holidays.

See also Estate of Strober v. Commissioner, T.C. Memo.

1992-350, where the Court makes the same analysis and

quotes extensively from Gilman v. Commissioner, supra.

For the reasons stated above, we sustain respondent's

determination of the additions to tax under section 6653

(a)(1) and (2) for negligence or intentional disregard of

rules or regulations and the additions to tax under section

6661(a) for substantial understatement of income tax.

- 57 Motion in Limine

Respondent objects to the testimony of petitioners'

"expert" witnesses, Mr. Raynault and Professor Mundstock,

on the ground that, if they are fact witnesses, then their

testimony is not acceptable under rule 602 of the Federal

Rules of Evidence, because they have no personal knowledge

of the facts at issue and, if they are "expert witnesses",

then their testimony is not admissible under rule 702 of

the Federal Rules of Evidence, because it would not assist

the trier of fact.

We agree.

Rule 702 of the Federal Rules of Evidence provides as

follows:

If scientific, technical, or other specialized

knowledge will assist the trier of fact to

understand the evidence or to determine a fact

in issue, a witness qualified as an expert by

knowledge, skill, experience, training, or

education, may testify thereto in the form of

an opinion or otherwise.

The report and testimony of neither of the witnesses who

testified on petitioners' behalf at the second trial

involved "scientific, technical, or other specialized

knowledge" that would assist the Court as "the trier of

fact to understand the evidence or to determine a fact in

issue".

Fed. R. Evid. 702.

The burden of Mr. Raynault's

report and testimony is that the documents supplied to

- 58 the unitholders of the Roscrea Trust, consisting of the

Investment Memorandum, the Projections, the Tax Opinion,

and the Appraisal, were "reasonable and consistent" with

the documents supplied by other "packagers" of similar

investments, and the activities undertaken by the

unitholders to review and investigate the subject investment were "reasonable and consistent" with what other

investors did.

Mr. Raynault does not acknowledge any of

the problems identified by the Court.

His report and

analysis are simply an extension of the argument made by

petitioners' counsel.

Similarly, the gist of the report and testimony of

Professor Mundstock is that the Tax Opinion provided in the

Investment Memorandum "addressed the issues which were then

the focus of the community of tax professionals who advised

investors in such transactions" and the opinions stated

therein "were consistent with the opinions experienced

tax counsel were providing to investors in similar investments".

Professor Mundstock also fails to acknowledge any

of the problems identified by the Court and described

above.

Our rejection of petitioners' position that they are

not liable for the additions to tax under sections 6653(a)

and 6661 is based entirely upon the factual record made

- 59 during the first trial in this case.

Our opinion sustain-

ing respondent's determination of the additions to tax

would be the same whether we accept the subject testimony

in evidence or not.

However, we find the report and

testimony of each of petitioners' "experts" during the

second trial, Mr. Raynault and Professor Mundstock, to

lack the objectivity and credibility which we expect from

experts who testify in this Court.

Both witnesses became

advocates for the position argued by petitioners in their

reports and testimony, and we find them to be of no

assistance in making our findings of fact in this case.

In this situation, we agree with respondent that the

reports and testimony should not be received in evidence.

See Snap-Drape, Inc. v. Commissioner, 105 T.C. 16, 20

(1995), affd. 98 F.3d 194 (5th Cir. 1996); Laureys v.

Commissioner, 92 T.C. 101, 122-129 (1989).

Rule 155 Computation

As amended by an order of the Court, Robertson I

directed that the Court's decision be entered under Rule

155.

In due course thereafter, respondent filed

respondent's computation for entry of decision under Rule

155, and petitioners filed petitioners' objection to entry

of respondent's decision under Rule 155.

Both parties also

filed memoranda setting forth their positions.

- 60 Petitioners object to respondent's computation of the

deficiency in, and additions to, petitioners' 1984 tax on

two grounds.

First, respondent failed to give petitioners

any credit in 1984 for taxes paid with respect to the

income from the Roscrea Trust reported on their returns for

the years 1987 through 1990. Petitioners refer to income

from the Trust that was reported on their returns for the

years 1987 through 1990 as "phantom income".

Second,

respondent failed to recognize in computing petitioners'

1984 taxes the "economic loss" of $57,420 that petitioners

suffered by reason of their cash investment in the Roscrea

Trust.

Petitioners ask the Court to order respondent to take

those items into account (i.e., "phantom income" reported

for the years 1987 through 1990 and petitioners' cash

investment) in computing their liability for taxes,

interest, additions, and penalties with respect to the

year in issue in this case, 1984, and the years in issue

in other docketed cases, 1982, 1983, and 1985.

According

to petitioners, their request "is consistent with this

Court's inherent powers, general equitable principles, and

clear Congressional intent--as well as common sense notions

of judicial economy and sound tax administration."

- 61 As to the phantom income, petitioners ask the Court

to order respondent to take into account "the income

Petitioners reported from the Roscrea Trust transaction

in later years and the overpayments that result from the

reporting of that income."

(Emphasis added.)

None of the

"later years", viz, 1987 through 1990, is before the Court

in this proceeding, however, and section 6214(b) deprives

us of jurisdiction to determine whether the tax for any

of those years has been overpaid or underpaid.

We do not agree with petitioners' argument that

application to 1984 of later years' overpayments (if

any) is necessary because otherwise "the amount of

the deficiency for 1984 will be incorrectly overstated

--in a manner inconsistent with this Court's Opinion".

The issue presented for decision in Robertson I was

whether petitioners were entitled to deductions in 1984

for accelerated depreciation on the computer equipment

purchased by Roscrea Trust and for the interest paid on

the indebtedness incurred by the Trust to purchase such

equipment.

The deficiency computed in petitioners' 1984

tax, attributable to the disallowance of such deductions,

is not affected by the issue whether petitioners had

overstated their income in a later year by including rental

income from the equipment.

In accordance with our annual

- 62 system of reporting income and expenses, the tax attributable to each year stands on its own.

See Security Flour

Mills Co. v. Commissioner, 321 U.S. 281, 286 (1944); Bank

of Commerce v. Commissioner, 10 B.T.A. 73 (1928).

Similarly, we do not agree that the additions to tax

"cannot be properly calculated without taking into account

income reported and taxes paid by Petitioners in subsequent

years."

The additions to tax in this case, the negligence

additions under section 6653(a) and the addition to tax

for substantial understatement of liability under section

6661(a), are both computed without regard to the "income

reported and taxes paid by Petitioners in subsequent

years."

In the case of the negligence additions under

section 6653(a), the amount of the additions is a

percentage of the "underpayment" as defined by section

6653(c).

In the case of the addition to tax for

substantial understatement of liability under section

6661(a), the addition is 25 percent of "any underpayment"

attributable to an "understatement".

We disagree with petitioners' contention that in

order to give full effect to our holding that the

transaction was a sham in substance, we must compute

petitioners' tax liability on a transactional basis.

Our

decision not to offset the deductions and losses in earlier

- 63 years (1982-85) against "phantom income" reported in later

years from the Trust transaction is consistent with our

holding in Robertson I.

In Kazi v. Commissioner, T.C.

Memo. 1991-37, affd. without published opinion sub nom.

Massey v. Commissioner, 950 F.2d 723 (3d Cir. 1991), the

Court refused to accept the taxpayers' argument that the

deficiency attributable to a straddle loss should be

reduced by the amount of any tax paid on the corresponding

straddle gain reported in a subsequent year.

The Court

stated:

Our holding * * * that the straddle transactions

were shams in substance does not imply that the

loss reported in one year must be offset by the

corresponding gain reported in a subsequent year.

Therefore, the elimination of the gain and loss

legs in the year each gain or loss was reported

gives full effect to our holding that the

straddle transactions were shams. [Id.]

As mentioned above, petitioners also argue that

respondent's computation is wrong because it fails to

recognize petitioners' cash investment of $57,420 in the

Roscrea Trust.

They contend that, according to the Court's

opinion, petitioners acquired a partial interest in the

computer equipment, and they are entitled to depreciation

deductions with respect to the amount of their actual cash

investment.

We disagree.

- 64 We agree with respondent that under our holding that

the transaction was a sham in substance, petitioners are

not entitled to recognition of their cash investment of

$57,420 in the form of depreciation deductions.

See

Gilman v. Commissioner, T.C. Memo. 1989-684 (on the basis

of the Court's finding that the transaction lacked economic

substance and business purpose, all of the taxpayer's

depreciation deductions were disallowed with no offset

allowed for the taxpayer's cash investment of $45,000);

Mele v. Commissioner, T.C. Memo. 1988-409 (on the basis

of the Court's finding that the transaction lacked economic

substance, all of the taxpayer's depreciation deductions

were disallowed with no offset for taxpayer's cash investment of $88,700).

Accordingly, we sustain the Rule 155

computation submitted by respondent.

Upon consideration of the foregoing,

An appropriate order will

be issued, and decision will

be entered in accordance with

respondent's Rule 155

computation.

Appendix A

ROSCREA TRUST

IBM, 3081, IBM PERIPHERALS, CONTROL DATA DISK DRIVES

COST $5,170,392

10-Dec-82

1982

Rental income

1983

1984

1985

1986

1987

1988

1989

1990(D)

1990(E)

1990(F)

1990(G)

$820,445

$986,133

$986,133

$986,133

$986,133

$986,133

$986,133

$986,133

$986,133

$986,133

$986,133

1,675

30,000

117,500

260,000

260,000

245,000

245,000

245,000

245,000

930,671

1,163,338

1,396,006

Additional income (A)

Sale proceeds

Total income

Depreciation (B)

820,445

986,133

987,808

1,016,133

1,103,633

1,246,133

1,246,133

1,231,133

2,161,804

2,394,471

2,627,139

$795,713

1,207,342

1,055,787

981,156

951,294

119,400

59,700

Interest

36,698

657,280

638,147

579,445

510,365

429,552

335,012

224,414

96,072

96,072

96,072

96,072

Total expenses

832,411

1,864,622

1,693,934

1,560,601

1,461,659

548,952

394,712

224,414

96,072

96,072

96,072

96,072

Taxable income

(832,411)

(1,044,177)

(707,801)

(572,793)

(445,526)

554,681

851,421

1,021,719

1,135,061

2,065,732

2,298,399

2,531,067

416,205

522,089

353,900

286,396

222,763

(277,340)

(425,710)

(510,860)

(567,531)

(1,032,866)

(1,149,200)

(1,265,533)

1,675

30,000

117,500

260,000

260,000

245,000

245,000

245,000

245,000

930,671

1,163,338

1,396,006

Cash-flow

Tax benefit (Liability)(C)

Rental cash-flow

Sale proceeds

Gross benefit

416,205

Less: capital invested

954,000

Annual benefit

(537,795)

Reinvest. @ 10%

Cumulative benefit (D)

(537,795)

522,089

353,900

288,071

252,763

(159,840)

(165,710)

(250,860)

(322,531)

142,805

259,138

375,472

522,089

353,900

288,071

252,763

(159,840)

(165,710)

(250,860)

(322,531)

142,805

259,138

375,472

(27,675)

13,357

46,791

78,512

91,009

83,833

71,388

49,857

73,124

78,940

84,757

(43,381)

323,876

658,738

990,013

921,182

839,305

659,833

387,159

875,761

997,911

1,120,062

(A) THIS FIGURE ESTIMATES THE RELEASING REVENUES BEGINNING IN MONTH 37.

(B) CALCULATED USING ACCELERATED COST RECOVERY SYSTEM GUIDELINES FOR FOREIGN AND DOMESTIC PROPERTY.

(C) ASSUMES A 50% TAX RATE.

(D) AT ZERO RESIDUAL VALUE THE CUMULATIVE BENEFIT AMOUNTS TO 387,159.

(E) ASSUMES A SALE PRICE OF 20% LESS A 10% SELLING COMMISSION.

(F) ASSUMES A SALE PRICE OF 25% LESS A 10% SELLING COMMISSION.

(G) ASSUMES A SALE PRICE OF 30% LESS A 10% SELLING COMMISSION.

Appendix B

ROSCREA TRUST

IBM, 3081, IBM PERIPHERALS, CONTROL DATA DISK DRIVES

COST $5,170,392

16-Dec-82

1982

Rental income

1983

1984

1985

1986

1987

1988

1989

1990(D)

1990(E)

1990(F)

1990(G)

$675,770

$1,043,128

$1,043,128

$1,043,128

$1,043,128

$1,043,128

$1,043,128

$1,043,128

$1,043,128

$1,043,128

$1,043,128

1,675

30,000

117,500

260,000

260,000

245,000

245,000

245,000

245,000

930,671

1,163,338

1,396,006

Additional income (A)

Sale proceeds

Total income

Depreciation (B)

675,770

1,043,128

1,044,803

1,073,128

1,160,628

1,303,128

1,303,128

1,288,128

2,218,799

2,451,466

2,684,134

$795,713

1,207,342

1,055,787

981,156

951,294

119,400

59,700

Interest

27,901

712,377

688,706

625,506

551,037

463,289

359,893

238,060

94,502

94,502

94,502

94,502

Total expenses

823,614

1,919,719

1,744,493

1,606,662

1,502,331

582,689

419,593

238,060

94,502

94,502

94,502

94,502

Taxable income

(823,614)

(1,243,949)

(701,365)

(561,859)

(429,203)

577,939

883,535

1,065,068

1,193,626

2,124,297

2,356,964

2,589,632

411,807

621,975

350,683

280,930

214,602

(288,970)

(441,768)

(532,534)

(596,813)

(1,062,149)

(1,178,482)

(1,294,816)

1,675

30,000

117,500

260,000

260,000

245,000

245,000

245,000

245,000

930,671

1,163,338

1,396,006

Cash-flow

Tax benefit (Liability)(C)

Rental cash-flow

Sale proceeds

Gross benefit

411,807

Less: capital

954,000

Annual benefit

(542,193)

Reinvest. @ 10%

Cumulative benefit (D)

(542,193)

621,975

350,683

282,605

244,602

(171,470)

(181,768)

(272,534)

(351,813)

113,522

229,856

346,190

621,975

350,683

282,605

244,602

(171,470)

(181,768)

(272,534)

(351,813)

113,522

229,856

346,190

(23,121)

23,200

57,185

89,264

101,847

94,369

81,091

57,983

81,250

87,066

92,883

56,661

430,544

770,334

1,104,200

1,034,577

947,178

755,735

461,905

950,507

1,072,657

1,194,808

(A) THIS FIGURE ESTIMATES THE TRUST'S PORTION OF THE RELEASING REVENUES BEGINNING IN MONTH 37.

(B) CALCULATED USING ACCELERATED COST RECOVERY SYSTEM GUIDELINES FOR FOREIGN AND DOMESTIC PROPERTY.

(C) ASSUMES A 50% TAX RATE.

(D) AT ZERO RESIDUAL VALUE THE CUMULATIVE BENEFIT AMOUNTS TO $461,905.

(E) ASSUMES A SALE PRICE OF 20% LESS A 10% SELLING COMMISSION.

(F) ASSUMES A SALE PRICE OF 25% LESS A 10% SELLING COMMISSION.

(G) ASSUMES A SALE PRICE OF 30% LESS A 10% SELLING COMMISSION.