Leveraged equipment leasing retains its tax advantages, but a taxpayer must be at risk
Article Abstract:
Recent decisions by the Tax Court have promulgated different approaches to determining the at-risk issues in leveraged equipment leasing transactions using a wraparound structure. Wraparound leveraged lease transactions involve the purchase of equipment by a leasing company which, in turn, leases the equipment to the user. A portion of the purchase price is borrowed on a nonrecourse basis from a lending institution. The leasing company sells the equipment to a third party which executes a note, usually recourse, for the balance of the purchase price to the leasing company. The third party sells the equipment to investors, who lease the equipment back to the leasing company. Wraparound leases provide for lease payments to investors that are sufficient to amortize obligations. Taxpayers should best structure wraparound leases so as to ensure the recourse nature of their debt obligations.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1990
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Safe harbors for valuation freeze arrangements contain planning opportunities
Article Abstract:
Section 2036(c) was written to prevent the reduction of Federal gift and estate taxes through valuation freezing techniques. The rule also applies to disproportionate transfers. The value of transferred property is included in the gross estate calculated for federal tax purposes after the death of a transferor. Under the Technical and Miscellaneous Revenue Act, transfer of the retained interest before the taxpayers' death are treated as a taxable gift. Safe harbors include: grantor retained income trusts; buy-sell agreements; performance of services. Notice 89-99 was issued to clarify Section 2036(c) and expands the safe harbor for qualified debt and adds a safe harbor for start-up preferred interest.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1990
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