- 14 -
agreement contained the stipulation that, upon the expiration of
the lease, the lessee had the option to purchase the equipment
for $1.
Discussion
We must consider whether the lease arrangements executed
during the years in issue constituted sales or whether they were
leases with an option to buy. Respondent argues that petitioner
mischaracterized the lease agreements by reporting the related
items as though the agreements were leases instead of sales;
i.e., reporting as income only the monthly payments rather than
reporting all the sale proceeds at the front end of the
transaction. Respondent determined that the arrangements were,
in substance, installment sales and that petitioner had
unreported gains of $31,500 and $53,602 for 1992 and 1994,
respectively. Petitioner contends that it properly characterized
and reported the transactions as leases with an option to buy.
Whether a sale is complete for Federal tax purposes depends
on all of the facts and circumstances. See Derr v. Commissioner,
77 T.C. 708, 724 (1981). We consider the following factors in
deciding whether a sale has occurred: (1) Whether the seller
transferred legal title; (2) whether the benefits and burdens of
ownership passed to the buyer; (3) whether the owner had a right
under the agreement to require the other party to buy the
property; and (4) how the parties treated the transaction. See
Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 NextLast modified: May 25, 2011