- 14 - purchase, but rather simply a transfer of property to be held as collateral in a financing arrangement. Risks and Responsibilities For purposes of determining the tax consequences of the transaction, another factor we consider is who bears the risks and burdens of ownership. Under the arrangement between the two parties, Benavidez is responsible for all taxes, utilities, and insurance and assumed the full burden and cost of keeping the premises in good condition. Benavidez is also responsible for all repairs or any damage to the premises, and Guaderrama is not liable for any damage to persons or property arising from any cause whatsoever. Benavidez agreed to indemnify and hold harmless Guaderrama from any and all claims and liability for damage to persons or property arising from any cause. Moreover, diminution of rental payments even in the event of a casualty or total destruction is not allowed. Thus, inconsistent with customary leases, this “lease” imposes essentially all of such burdens, risks, and responsibilities for the property upon Benavidez. The Terms of the Payments The rental payment in this transaction is based on the construction costs of the restaurant plus 15 percent interest. The inclusion of an interest component is indicative of a financing arrangement. See Judson Mills v. Commissioner, 11 T.C.Page: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Next
Last modified: May 25, 2011