Home Page link  

Leased Equipment Tax Questions

  
Groups | Search | About
User Password
Register Now! Lost Password?

Taxes General Forum - Tax professionals meeting place and answers to queries. (Moderated)

 Post an article  get this group's latest topics as an RSS feed add this group's latest topics to your My MSN content add this group's latest topics to your My Yahoo content  add this group's latest topics to your Google content  YahooMyWeb Yahoo!  Google Google  Windows Live Favorites Windows Live  del.icio.us del.icio.us  digg digg  Add to Netscape Netscape
Subject Author Date
Leased Equipment Tax Questions ebrainsh@yahoo.com 04-08-2008
Posted by Paul Thomas, CPA on April 9, 2008, 7:51 am
Please log in for more thread options
> Thank you for responding. The answer to your questions:
>
> 1. It is an "at-arms-length" transaction
> 2. The companies are unrelated
>
> For further understanding of the situation:
>
> The equipment is industrial in function and does NOT produce a widget
> The Term of the lease is long term (20 years)
> The company leasing the equipment (owner) buys the equipment from a
> manufacturer
> The company then turns around and leases the equipment to unrelated
> entities
> The reason the company retains a very slight production right on the
> equipment is to ensure that the lessee cannot claim ownership (IRS)
> (is this necessary)




News to me. What Code section says that?





> There is a question about COGS deductions for the owner of the
> equipment (leasing revenue minus the cost of the equipment ). Can the
> owner of the equipment take COGS and depreciation deductions




I don't see any COGS deduction at all.

At best, all receipts are considered to be rental revenues.





--
Paul A. Thomas, CPA
Athens, Georgia

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by hhelman on April 9, 2008, 2:54 pm
Please log in for more thread options
 wrote:
>
>
>
> > Thank you for responding. The answer to your questions:
>
> > 1. It is an "at-arms-length" transaction
> > 2. The companies are unrelated
>
> > For further understanding of the situation:
>
> > The equipment is industrial in function and does NOT produce a widget
> > The Term of the lease is long term (20 years)
> > The company leasing the equipment (owner) buys the equipment from a
> > manufacturer
> > The company then turns around and leases the equipment to unrelated
> > entities
> > The reason the company retains a very slight production right on the
> > equipment is to ensure that the lessee cannot claim ownership (IRS)
> > (is this necessary)
>
> News to me. What Code section says that?
>
> > There is a question about COGS deductions for the owner of the
> > equipment (leasing revenue minus the cost of the equipment ). Can the
> > owner of the equipment take COGS and depreciation deductions
>
> I don't see any COGS deduction at all.
>
> At best, all receipts are considered to be rental revenues.
>
> --
> Paul A. Thomas, CPA
> Athens, Georgia
>
> --
> << ------------------------------------------------------- >>
> << The foregoing was not intended or written to be used, >>
> << nor can it used, for the purpose of avoiding penalties >>
> << that may be imposed upon the taxpayer. >>
> << >>
> << The Charter and the Guidelines for submitting posts >>
> << to this newsgroup as well as our anti-spamming policy >>
> << are atwww.asktax.org. >>
> << Copyright (2007) - All rights reserved. >>
> << ------------------------------------------------------- >>

Please see the first WARNING message on this site.

http://www.finance.cch.com/text/c60s15d695.asp

========================================= MODERATOR'S COMMENT:
Please delete unnecessary text from the prior message when responding.

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Paul Thomas, CPA on April 9, 2008, 3:22 pm
Please log in for more thread options

> Please see the first WARNING message on this site.
>
> http://www.finance.cch.com/text/c60s15d695.asp




Sure, where you are, in fact, obtaining all the benefits of owning the
equipment and the "lease" is nothing more than a financing method, then you
capitalize the equipment purchase and take depreciation. The "sale" is
booked in full and the resulting A/R shown, and each payment carries imputed
interest.

But no place does it stipulate that you had to obtain some ownership of the
machine's production to avoid that.




Maybe someone else sees it differently.



--
Paul A. Thomas, CPA
Athens, Georgia

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by dpb on April 9, 2008, 3:24 pm
Please log in for more thread options
hhelman@gmail.com wrote:
...
>>> The equipment is industrial in function and does NOT produce a widget
>>> The Term of the lease is long term (20 years)
...
>>> The reason the company retains a very slight production right on the
>>> equipment is to ensure that the lessee cannot claim ownership (IRS)
>>> (is this necessary)
>> News to me. What Code section says that?
...

> Please see the first WARNING message on this site.
>
> http://www.finance.cch.com/text/c60s15d695.asp
...

From the last section of that page--

"If you have any doubt as to how the IRS may view the lease, have your
accountant or lawyer review the agreement."

That's probably the best advice on the page. The worst of the page is
they generalize from very specific rules w/o providing the reference to
those rules so that one can actually read what the rules themselves say
rather than whoever wrote the site blurb's interpretation of those rules.

I do not that at least one of the concerns raised isn't present here --
that of short term leases to effectually advance depreciation. But,
since the equipment type isn't provided in the original question, is 20
years short/long for the equipment involved or completely arbitrary
having nothing whatsoever to do w/ the equipment itself?

It would also seem questionable to me that there was sufficient concern
in the setting up of this least that there was a deliberate ploy used to
try to skirt a clause--ok, it's pretty clear the actual effort was
probably pretty amateurish attempt and doesn't do much, but still... :)

I think OP's best bet here will be to get professional local advice that
has access to _all_ the facts and can do diligent analysis of the
situation--some opinions from a usenet group may be of some use in
understanding issues, but don't think it's likely to provide a
definitive response.

imo, $0.02, ymmv, etc., etc., etc., ...

--

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Seth on April 9, 2008, 2:38 pm
Please log in for more thread options
>A company is leasing equipment to a third party. This equipment is
>owned by the company and the company retains one half of 1% (.005)
>interest in the equipments production.

What does that mean?

Does it mean that the lease payment is a fixed amount plus a fraction
of the value of stuff produced? Or does the owning company get some
of the stuff produced?

Seth

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Similar ThreadsPosted
A few questions April 11, 2007, 11:28 pm
Questions? What to do? April 17, 2006, 10:54 pm
LLC (Partnership) Tax Questions November 7, 2006, 8:19 am
ROTH questions February 9, 2007, 12:30 am
Two questions on deductions April 15, 2007, 1:42 pm
LLC taxation questions May 25, 2007, 1:41 pm
Re: LLC taxation questions May 29, 2007, 10:45 pm
IRS notice questions June 8, 2007, 1:21 pm
Tax Software Questions January 17, 2008, 1:35 am
llc first time tax questions February 15, 2008, 4:21 pm

Contact Us | Privacy Policy
This site is not affiliated with Intuit - makers of Quickbooks and Quicken software
This site is not affiliated with Sage Software - makers of Peachtree accounting software
XML SitemapXML Sitemap