Equipment Leasing: Substance and Form (Portfolio 544)


Toby Cozart


Piedmont Law Partners

At a glance

I. Introduction
II. Substance and Form


Bloomberg Tax Portfolios, Equipment Leasing: Substance and Form, No. 544, and Equipment Leasing: Benefits and Burdens, No. 545, discuss the factors that must be considered in structuring an equipment leasing arrangement so that it will be treated as a lease for U.S. federal income tax purposes. They also examine other business arrangements that involve rights to use tangible personal property, including conditional sales, partnerships and service contracts.

This Portfolio summarizes basic lease transactions, the reasons for leasing, various factors that have affected lease structures and the sources of legal principles governing tax lease characterization. This Portfolio focuses on business purpose and economic substance and other doctrines relating to the form and substance of a transaction involving the use of tangible personal property. It presents the case law as it has crystallized around the landmark cases of Frank Lyon Co., Rice's Toyota World, ACM Partnership and BB&T Corp. In discussing BB&T Corp., this Portfolio addresses the IRS's attack on defeased lease transactions.

This Portfolio also addresses the doctrine that prevents taxpayers from disavowing the form of a transaction, which is particularly relevant to cross border leasing transactions. It covers principles determining when a transaction party is treated as an agent or conduit, which have been applied to rent stripping transactions.

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