113 T.C. No. 6
UNITED STATES TAX COURT
HARRY E. PEADEN, JR. AND CINDY D. PEADEN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14837-97. Filed August 9, 1999.
C, P's wholly owned S corporation,
leased trucks under master lease agreements
(master leases). For each truck, C and the
lessor agreed to a base rent dependent on the
lessor's cost of the truck. The master
leases contain a terminal rental adjustment
clause (TRAC), as defined in sec. 7701(h)(3),
I.R.C., providing that the lessor, at the
conclusion of the lease term, must sell the
truck and remit to C any sale proceeds that
exceed the remaining base rent plus the
lessor's cost of arranging the sale. R does
not argue that the lease agreements are not
"qualified motor vehicle operating
agreements" within the meaning of sec.
7701(h)(2), I.R.C., but instead argues that
the TRAC may be taken into account in
determining whether the transactions entered
into pursuant to the master leases (lease
transactions) should be treated as leases.
Held: Pursuant to sec. 7701(h)(1),
I.R.C., the TRAC contained in the master
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