Robertson

*704 MEMORANDUM *

Appellants appeal the tax court’s finding that the computer sale-leaseback transaction in which they invested was a sham transaction, as well as its finding that Appellants were hable for penalties for negligence. We agree with the tax court on both issues.

1. Sale-Leaseback Transaction

Tax benefits from sale-leaseback transactions, even when entered into with an eye to tax benefits, can be acceptable: “The fact that favorable tax consequences were taken into account by [the taxpayer] on entering into the transaction is no reason for disallowing those consequences.” Frank Lyon Co. v. United States, 435 U.S. 561, 580 , 98 S.Ct. 1291 , 55 L.Ed.2d 550 (1978). However, “[w]hen a transaction is entered into without any purpose other than to obtain tax benefits, the form of the transaction will be disregarded and the tax benefits denied.” Ockels v. Comm’r, 54 T.C.M. 785, 796 (1987) (citing Law v. Comm’r, 86 T.C. 1065, 1093 , 1986 WL 22133 (1986)).

This court uses a flexible two-prong test to determine whether a transaction was a sham: (1) whether the transaction was likely to have economic substance aside from the tax benefits (an objective test); and (2) whether…