Lauro G. and Gayle W. Guaderrama - Page 16




                                         - 16 -                                          
          value of the going business concern.  This is indicative of a                  
          financing arrangement, not a lease.                                            
          The Potential for Profit or Loss                                               
               A significant factor to be used in determining ownership of               
          property is the extent to which the taxpayer has potential for                 
          profit or loss as a result of holding the property.  See Frank                 
          Lyon Co. v. United States, 435 U.S. at 579; Sun Oil Co. v.                     
          Commissioner, 562 F.2d at 268.                                                 
               In this case, the transaction severely limits Guaderrama’s                
          ability to participate in any appreciation in the value of the                 
          property.  Because of the repurchase option at less than fair                  
          market value, it is a virtual certainty that Benavidez will                    
          exercise the option and repurchase Severo’s.  Thus, any                        
          appreciation in value will be realized by Benavidez, not                       
          Guaderrama.  Furthermore, all rental payments are at a fixed                   
          amount, with no allowance for inflation or increases in property               
          value.                                                                         
               In addition, the transaction was structured so that profits               
          and losses resulting from the operation of the premises will                   
          inure to Benavidez.  Benavidez owns the right to operate and use               
          the restaurant however he sees fit, and any profits or losses                  
          resulting from the operation of the restaurant belong to                       
          Benavidez.  Guaderrama, on the other hand, has a fixed rate of                 
          return.  Regardless of how successful Severo’s is, Guaderrama is               






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