- 108 -
termination date was $44,275,948; the balance on the balloon notes
as of the early termination date totaled $25,582,611, and the early
termination supplement was $343,856. If the equipment had a value
equal to the $44,275,948 estimated residual value, in order to
repurchase the equipment Comdisco would have to pay $19,037,193
(the fair market value $44,275,948, plus the $343,856 supplement,
less the $25,582,611 balance due on the balloon notes).
Thus, it is clear in this case that the parties never intended
to permanently transfer ownership of the equipment to Andantech.
Consequently, the transaction did not constitute a sale for Federal
tax purposes. Even if the estimated residual value set forth in
the proposal had been realistic, RD Leasing’s $4 million profit
would have been attributable to contract rights rather than to a
depreciable ownership interest in the equipment.
By contrast, in the Frank Lyon Co. case, “it was highly
unlikely, as a practical matter, that any purchase option would
ever be exercised.” Frank Lyon Co. v. United States, 435 U.S. at
569-570.
In this case, the seller-lessee, Comdisco, retained an
additional economic interest in the equipment. Comdisco’s right to
substitute equipment gave Comdisco the right to the difference
between the value of the equipment to the end user and the value on
the open market. The sale-leaseback agreements did not alter
Comdisco’s relationship to the end users or diminish Comdisco’s
control over the equipment. Comdisco never relinquished the
Page: Previous 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 NextLast modified: May 25, 2011