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arranging the sale, the lessor is required to remit the excess to
Country-Fed. If the proceeds of the sale obtained by the lessor
are less than any remaining base rent, plus the cost to the
lessor of arranging the sale, Country-Fed is required to pay the
lessor the difference.
The McCullagh master lease contains an option for Country-
Fed to buy the respective truck at the end of its lease term for
the truck's fair market value. The ARI master lease specifically
provides that Country-Fed has no option to purchase the
respective truck at any time. The World Omni master lease does
not provide an option for Country-Fed to buy the respective truck
but provides that Country-Fed may purchase the truck if it is
being sold at a public sale. Country-Fed did, however, acquire
title to most of the trucks at the end of the respective lease
transactions.
On or about April 9, 1997, respondent issued a notice of
deficiency that determined a deficiency in petitioners' Federal
income tax in the amount of $977,267 for their 1993 taxable year.
Respondent increased petitioners' Schedule E income by
$2,304,296. In calculating the increase, respondent determined
that petitioners were not entitled to: (1) A rental deduction of
$2,946,224 for the lease of trucks and related equipment by
Country-Fed; (2) an employee business relations/entertainment
deduction of $222,425; and (3) other deductions of $350,365.
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