Sale and leaseback not a sham, though no pre-tax profit

Article Abstract:

The Ninth Circuit reversed the decision of the Tax Court in the 'Sacks' case and concluded that a sale and leaseback transaction was not a sham even though tax benefits were needed to make it profitable. The Tax Court found that the taxpayer cannot avail of investment tax credits and depreciation because the taxpayer overpaid for the solar water heaters purchased and could not hope for an economic gain without tax benefits. It concluded that the recourse notes were inauthentic. In reversing this decision, the Ninth Circuit gave five justifications. It found that the taxpayer was genuinely at risk, the purchase price was within the bounds of reason, the transaction did not generate tax benefits in an artificial fashion but only transferred available benefits, a genuine business transaction existed where heaters were installed in consumers' home, and the fluctuation of energy prices affected the taxpayer.

Accounting, Investment tax credit

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TC shows when sale-leaseback will be recognized

Article Abstract:

A tax court case is described concerning the recognition of sale-leaseback transactions for tax purposes. To be recognized, a sale-leaseback must have benefits and burdens of ownership for the owner, and the transaction should be capable of providing profits in addition to tax benefits. The tax court described the factors that will permit a sale-leaseback to meet both criteria. In this case, the cash flow projections provided by the lessor, which were based on existing end-user leases, convinced the court that the transaction had economic substance. The court also ruled that the taxpayer satisfied the attributes of ownership because the taxpayer had paid fair market value for the property exchanged.

Tax courts

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Sale/leaseback fails sham test

Article Abstract:

The Tax Court, in Casebeer, held that depreciation and interest deductions were not allowed on the sale and leaseback of computer equipment. The taxpayers had bought computer equipment from a leasing company and had leased the equipment back to the firm. The Tax Court, in determining whether the sale-leaseback transaction was a sham, had to determine whether there was a business purpose other than tax evasion, and whether the transaction was motivated by reasons other than tax benefits. The deductions taken by the taxpayers were disallowed because the Tax Court determined that the sale-leaseback transaction was a sham.

Fraud, Tax evasion

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