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Marky Kay6/15/2003
see's position, it cannot persuasively argue that, in substance, it remains merely a guarantor and not a lessee-sublessor or lessee-sublicensor. The substance of the transaction appears to be a lease from ARI to taxpayer with taxpayer then providing the use of Career Cars to the Consultants as an incentive.
e. Credit Provisions and Concerns
One of the most troubling facts about taxpayer's characterization of the relationship created by the agreements is that neither ARI, the putative creditor, nor taxpayer, the putative guarantor, appear concerned about the creditworthiness of the Consultants, the putative lessees.
ARI's lack of concern with the credit of any Consultant is evidenced by the fact that the ARI Agreement requires no financial information from the Consultants. In contrast, ARI negotiated for the right to receive unqualified audited financial statements of taxpayer and notice of any change in ownership or control of taxpayer. Appendix A at 10K. In comparing ARI's evident concern about the credit of taxpayer (the putative guarantor) with its utter lack of concern for the credit of the Consultants (the putative lessees), it is hard to avoid the conclusion that ARI was, in economic substance, dealing directly with taxpayer and not with each Consultant. See Plantation Patterns, Inc. v. Comm'r of Internal Revenue, 462 F 2d 712, 724 (1972) (finding that where, in substance, the creditor looked to the guarantor as the primary obligor, the guarantor is treated as primary obligor).
Although ARI's lack of concern with the credit of the Consultants is of some concern, it could be explained by the fact that taxpayer's superior credit status renders that of the Consultant largely irrelevant to ARI. However, taxpayer never appears to concern itself with the credit status of each Consultant. Taxpayer's lack of concern with the credit of the Consultants is decidedly inconsistent with taxpayer's proposed view of the transactions. In theory, if taxpayer agreed to guarantee obligations of the Consultants, it would have wanted some credit information about each Consultant. Nothing in the record indicates taxpayer ever requested or received such information.
Such disregard is understandable insofar as taxpayer apparently decided to take a categorical risk with all of its Consultants. However, taxpayer also appears to have ignored the individual credit status of each Consultant in reporting the value of the transaction to the IRS and any element of value attributable to its guaranty in favor of the Consultant.
It is extremely unlikely that all Consultants would have equal creditworthiness. Taking unequal creditworthiness as a given, if taxpayer was in fact a guarantor for each Consultant, the value of taxpayer's guarantee to a Consultant with good credit would be less than the value of the same guarantee to a Consultant with poor credit. However, in reporting to the IRS the value of the Career Car Program to Consultants, no compensatory element attributable to the value of the guaranty is acknowledged. More importantly, no distinction is made, other things such as Career Car choice being equal, between a Consultant with superior credit and a Consultant with inferior credit. The components of the report to the IRS are limited to the amount of the monthly lease payments paid by taxpayer and the cost of insurance, miscellaneous taxes, title, and registration fees paid.
Here again, the facts are inconsistent with taxpayer's theory that it stands as a guarantor to each individual lease between a participating Consultant and ARI. If that were the role of taxpayer with respect to all Career Cars leased from ARI, a different value would be repo
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