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Federal and State Income Tax Issues, Too The question of just selling rents or providing title has
federal income tax issues as well. If a leasing company sells the payment
stream on a non recourse basis and retains title then you have to look
to see if the transaction is a tax lease. The lessor retainsMACRS depreciation but must report as income
the full discounted rent from the funding source because the non-recourse
means there is no liability to return it so it becomes earned at once.
Some believe that by not taking depreciation they have no quarrel with
the IRS when in fact the question is “how much income to report”. As the owner you
report rent income not the fee you earned. If you hold title on a true
lease and sell the stream, on a non recourse basis, your income is the
discounted rent amount received and it is only off set with the first
years MACRS depreciation. That is why many lessors sell the title and
obtain a remarketing agreement to obtain residual or purchase option
rights.. This California sales tax question now puts an additional
problem to sell or not to sell the title .. Terry Winders CLP ----------- This is not the first time the State Board of Equalization
is visiting this issue. I worked for a leasing company in the 70’s and early
80’s who got “trapped by their logic. Because I was a partner in a general partnership, they levied
a number of partners personal bank accounts to get their money. It took
4 years to get that money back because a suit was brought.( not by us)
( Enterprise Leasing I think) and it was determined that just having
the word sale in the documents between you and your lender did not constitute
a sale. It was the “intent of the document and not the form” that was
binding and relevant. The only upside of the whole nightmare was that while the
state board had our money, they were charging and paying about 5% more
than banks. When it was finally resolved, our “enforced savings accounts”
had all grown nicely. I’m getting really sick of governmental agencies waking up
every morning with the thought “ Who can I get money from now?” Doris Tamboryn J.G. Capital Corp. --- I’m not sure why everyone is surprised about the State of
Ca’s position on collecting tax on discounted leases. This has always been the rule (as far back as I can remember). There were several
UAEL sessions on the topic.
When they need more taxes, they enforce stronger.
Wasn’t there a 90 day rule (discounting took place within 90
days) that saved a lot of lessors in the past?
Someone may be able to look into the specifics to help out Bette. Hope this helps. Jim Swander Jim Swander <jimswander@sprintmail.com> |
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