rev_rul_55-540_lease_factors - Checkpoint Contents Federal...

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Checkpoint Contents Federal Library Federal Source Materials IRS Rulings & Releases Revenue Rulings & Procedures, Notices, Announcements, Executive & Delegation Orders, News Releases & Other IRS Documents Revenue Rulings (1954 to Present) 1955 Rev. Rul. 55-540, 1955-2 CB 39 -- IRC Sec(s). 162 Revenue Rulings Rev. Rul. 55-540, 1955-2 CB 39, IRC Sec(s). 162 Headnote: Rev. Rul. 55-540, 1955-2 CB 39 -- IRC Sec. 162 (Also Section 167.) (Also Part II, Sections 23(a), 23(l); Regulations 118, Sections 39.23(a)-1, 39.23(a)-10, 39.23(l)-1.) Reference(s): Code Sec. 162; Guides to be used in determining the treatment, for Federal income tax purposes, of leases of equipment used in the trade or business of the lessee. Full Text: 1. Purpose. The purpose of this Revenue Ruling is to state the position of the Internal Revenue Service regarding the income tax aspects of the purported leasing of equipment for use in the trade or business of the lessee. The issues and rules herein discussed are not all- inclusive, and as new questions of importance arise additional Revenue Rulings will be issued. 2. Background. .01. Many new and unique types of agreements concerning the use and disposition of equipment have been developed to meet the needs and purposes of the users of industrial and business equipment. The lessor, in devising these agreements, is primarily interested in disposing of his wares to customers. (Here and elsewhere in this ruling the terms “lessor” and “lessee” are used for convenience, without intending to suggest the proper characterization of any agreement.) The lessee, on the other hand, may have one or more reasons for leasing instead of purchasing the equipment. He may have use for the equipment for only a comparatively short period of time. He may <Page 40> wish to experiment with a new process or product which requires equipment he does not own. He may have insufficient capital or credit with which to make an outright purchase, or have other needs for his working capital. A significant motive may, in some cases, be the tax
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advantages which might result because of the different timing of the deductions for rent as compared to depreciation. .02. The agreements are generally cast in the form of chattel leases and are as varied as the reasons for entering into such arrangements. An approximate pattern is discernible, however, and many of the agreements may be loosely defined and grouped as follows: (a) Short-term agreements which usually concern mobile equipment or relatively small articles of equipment. The “compensation for use” provisions in these agreements are usually expressed in terms of an hourly, daily, or weekly rental, and the rental rates are relatively high in relation to the value of the article. There may be an option to purchase the equipment at a price fixed in advance which will approximate the fair market value of the equipment at the time of the election to exercise the option. In this type of agreement, all costs of repairs, maintenance, taxes, insurance, etc., are obligations of
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rev_rul_55-540_lease_factors - Checkpoint Contents Federal...

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