The Company expects important rate case issues, including the incorporation of any federal income tax requirements to structure the leases as true leases
, the regulatory method to update lease payments between rate cases and economic issues such as the allowed return on equity, income tax allowance and approved lease rates, to be addressed over the remaining course of the rate case.
Single-investor leases and leveraged leases are two categories of true leases
the full priority treatment of true leases
promotes efficient outcomes.
Mixing the use of true leases
and conditional sales leases can help a business avoid exceeding the $800,000 cap because leased equipment does not qualify for Section 179.
You need to determine whether, for tax purposes, the leases are (a) true leases
, in which case the lessor recovers its tax basis via depreciation deductions, or (b) leases evidencing a financing or sale, in which case the lessee depreciates the equipment cost and the lessor's tax basis is in the receivables.
Since only true leases
allow transfer of non-debt tax shields, consideration of only capitalized leases may cause us to miss the true effect of tax status on leasing.
We also understand that some accountants have taken the position that a leasing company that sells true leases
and the related vehicles will also obtain sale treatment - and be able to remove the assets from its balance sheet, if it has obtained residual value insurance with respect to the vehicles.
The Service also concluded that the auto leases were true leases
for tax reporting purposes.
The last two are also classified as true leases
for tax purposes and operating leases for financial accounting purposes, but represent leasing options with much greater flexibility and less uncertainty than the first two options.
The question of whether these are true leases
or loans is often raised.