"Paul Thomas, CPA" <paulthomascpapc[at]bellsouth.net> wrote:

- quote -

Some of these posts are rejected. Other posters are notified first and
then rejected if they don't learn. Sometimes violations are allowed
through if the content is particularly helpful.

Stu

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hhelman[at]gmail.com wrote:
....
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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., ...

--

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- quote -






Dick, you might have to write an "if/then" exception to filter those posts
out.






--
Paul A. Thomas, CPA
Athens, Georgia

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<hhelman[at]gmail.com> wrote
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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

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On Apr 9, 2:38 pm, se...[at]panix.com (Seth) wrote:
- quote -


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

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On Apr 9, 7:51 am, "Paul Thomas, CPA" <paulthomascp...[at]bellsouth.netwrote:
- quote -


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

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

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In article <2a938f65-33a5-4ce4-898f-c4a91042a893[at]24g2000hsh.googlegroups.com> ,
ebrainsh[at]yahoo.com <ebrainsh[at]yahoo.com> wrote:
- quote -

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

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<hhelman[at]gmail.com> wrote
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News to me. What Code section says that?





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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

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On Apr 8, 10:21 pm, "Paul Thomas" <paulthomas...[at]bellsouth.net> wrote:
- quote -


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)
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

In advance thank you for responding

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Please delete unnecessary text from the prior message when responding.

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<removeps-groups[at]yahoo.com> wrote
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It's never cut-n-dry. Who owns both companies?



- quote -



Not if I own the house and I live there.



The problem, as I see it without a ton of research, is the sharing of
profits in the production (use) of the equipment. That cracks that
unrelated barrier, enough for me to want to look it up (I'm not gonna do it,
but you should).





- quote -



In an "at-arms-length" transaction, yes to the first half, and maybe to the
second half. Manufacturers might be required to capitalize their expenses
of production into finished goods inventory.





- quote -




As I said, that cracks the "unrelated" barrier, enough for me to want to
look it up (I'm not gonna do it, but you should).

If both companies are related, then it probably won't work like you want it
to.



--
Paul A. Thomas, CPA
Athens, Georgia

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<< ------------------------------------------------------- > << 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. > << ------------------------------------------------------- >

On Apr 8, 6:15 pm, "Paul Thomas" <paulthomas...[at]bellsouth.net> wrote:

- quote -

Isn't it as simple as this? The company that owns the equipment gets
to depreciate it. Just like a rental, whoever owns the house gets to
depreciate it and enter it on their Schedule E. The rent that the
owner charges for leasing the property will include the tax break of
depreciation. The owner would have to report the rental/leasing
income, and the company that leases the property will deduct it as an
operating cost. The "one half of 1% (.005) interest" seems
irrelevant. Now I could be way off too.

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<ebrainsh[at]yahoo.com> wrote
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Related or unrelated?




- quote -


So there's some related party transaction going on.





- quote -



It sounds to me like the depreciation expense gets capitalized into the cost
of the finished goods.

But more diging is needed to verify that.





- quote -


Like what?





--
Paul A. Thomas, CPA
Athens, Georgia

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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. Does the company get to fully
depreciate the equipment under this arrangement? Does the company get
the benefit of all tax related credits and or other benefits?

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