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Grodt & McKay Realty, Inc. v. Commissioner, 77 T.C. 1221, 1237-
1238 (1981).
Each lessee entered into an agreement in which the lessee
would make payments covering a period ranging from 36 months to
60 months, depending on the agreement. At trial, however,
petitioner admitted that most of the payments for the leases were
received in a single or lump-sum payment. The agreements also
provided that the lessee had the option of purchasing the
equipment for $1 by giving the lessor 30 days’ notice before the
expiration of the lease. The agreements also required the lessee
to pay the expense of all repairs on the equipment and maintain
insurance for the equipment.
Petitioner argues that the transaction was treated
consistently as a lease for tax purposes. The test, however,
does not center on the labels given to a transaction, but,
rather, the intent of the parties should be examined from the
viewpoint of what they intended to happen. See Oesterreich v.
Commissioner, 226 F.2d 798, 801 (9th Cir. 1955). The fact that
the purported lessees bore the burden of expenses for repairs,
insurance, and maintenance and could acquire the property at the
end of the lease term for a $1 option is a strong indication
that, regardless of the labels, the parties intended these
transactions to be a sale of the equipment. See Kwiat v.
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