Harry E. Peaden, Jr. - Page 10




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          Respondent allowed petitioners additional Schedule E deductions             
          of $1,092,804 for depreciation and $121,914 for fringe benefits             
          paid to employees.  Additionally, respondent increased                      
          petitioners' adjusted gross income by $91,672 for fringe benefits           
          received and disallowed $71,879 in itemized deductions.                     
          Respondent further determined that petitioners were liable for an           
          accuracy-related penalty pursuant to section 6662 of $195,453.              
               The parties have settled all of the issues determined in the           
          notice of deficiency except the disallowed Schedule E rental                
          deduction for the trucks and related equipment leased by Country-           
          Fed and the allowable depreciation deduction if the rental                  
          deduction is disallowed.                                                    
                                       OPINION                                        
               We must decide whether section 7701(h)(1) precludes                    
          consideration of the TRAC contained in the master leases covering           
          the lease transactions and whether the lease transactions should            
          be treated as leases or as purchases of trucks.  Neither party              
          disputes that the provisions of the master leases that require              
          either the lessor to remit to Country-Fed the amount by which the           
          sale proceeds of the truck exceed the remaining base price plus             
          the cost of the sale, or, conversely, require Country-Fed to                
          remit to the lessor the amount by which the remaining base rent             
          plus the cost of the sale exceeds the proceeds, are a "terminal             
          rental adjustment clause" within the meaning of section                     





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