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an inordinately large proportion of the total sum required to be
paid to secure the transfer of the title; and the property may be
acquired under a purchase option at a price that is nominal in
relation to the value of the property at the time when the option
may be exercised, as determined at the time of entering into the
original agreement, or at a price that is a relatively small
amount when compared with the total payments that are required to
be made.
The facts in this case fit squarely within the conditions
set forth in the ruling: the terms of the leases were
substantially less than the life of the equipment, and UCI owned
the equipment outright, either after a maximum of 10 payments or
after exercising a nominal buy out option. Rather than
supporting petitioner's position, Revenue Ruling 55-540 is
contrary to petitioner's position.
Petitioner relies on Benton v. Commissioner, supra, to
support deducting all payments under short-term leases. In
Benton, the lease was for the purchase of automobiles to be used
as taxicabs. The 1945 lease required 10 payments of $5,000 with
an option to purchase the automobiles for $35,000 at the end of
the 10 months. The Court of Appeals upheld the leases stating
that, when the intent of the parties to a contract is determined,
it must be determined in light of the facts and circumstances as
they existed at the time the parties entered into the contract.
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