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7701(h)(3). Respondent contends that the lease transactions are
conditional purchases of trucks because, as to any particular
lease transaction, the remaining base rent is always lower than
the fair market value of the respective truck at the end of its
lease term. Respondent points to the TRAC contained in each of
the master leases and argues that, because the amounts that the
lessors receive on the sale of the trucks always exceed the
remaining base rent, Country-Fed could, and for the most part
did, acquire the trucks at the end of the lease term for a
nominal price. Accordingly, respondent argues, the substance of
the lease transactions is the purchase of a truck.
Petitioners argue that, in deciding whether the lease
transactions should be treated as leases, section 7701(h)(1)
precludes consideration of the TRAC upon which respondent relies.
Petitioners argue that, but for the TRAC, the substance of the
lease transaction is a lease and therefore the lease transactions
should be treated as leases.
Section 7701(h)(1) provides:
SEC. 7701 (h). Motor Vehicle Operating Leases.--
(1) In general.--For purposes of this title, in
the case of a qualified motor vehicle operating
agreement which contains a terminal rental adjustment
clause--
(A) such agreement shall be treated as a
lease if (but for such terminal rental adjustment
clause) such agreement would be treated as a lease
under this title, and
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Last modified: May 25, 2011