PPR vs Sch C

[krazykev]

I have a client with a C Corp that in the past was renting some small tools to the corp that we had been claiming on Line 21 as PPR and with small depreciation expense on Line 35. Given that the purpose of this rental wasn't truly for a business, but mostly just a convenience because he owned the tools and didn't want to sell them to the corp. Now however, he has purchased a work truck that is being used 85% of the time for the corporation and the corporation has begun leasing it from him in addition to the equipment. So obviously the amount of rent paid has grown significantly and I am wondering if this rent needs to shift from a PPR on the front of the 1040 to a schedule c subject to SE.

Can anyone offer insights or previous experiences with a similar situation and how best to handle it? In my mind I can justify it going either way and could use some outsider views on if this situation is a business or will pass IRS scrutiny as a PPR.

Thanks so much!!

[Gretel]

I could be wrong but when I researched the issue some years ago (didn't keep findings) it appeared to me that if you rent equipment to the business you materially participate in then you are automatically in the business of renting equipment and it has to go on Sch. C.

[ChEAr$]

correct

I could be wrong but when I researched the issue some years ago (didn't keep findings) it appeared to me that if you rent equipment to the business you materially participate in then you are automatically in the business of renting equipment and it has to go on Sch. C.

In fact we just discussed this on another national board. That PPR thing only works if a
casual thing and not continuous innature.

However for the OP re the van. Instead of renting it to corporation, why not just obtain mileage reimbursement under an accountable plan?

[krazykev]

In fact we just discussed this on another national board. That PPR thing only works if a
casual thing and not continuous innature.

However for the OP re the van. Instead of renting it to corporation, why not just obtain mileage reimbursement under an accountable plan?

I am considering the mileage method, but it may be a bit sticky for 2008. Client has paid himself a payment each month in 2008 so I not sure how to approach that. The rent has been paid so it will need to be claimed in 2008, but if I take depreciation on the truck in 2008 to offset the rent it can't be switched to mileage in 2009 can it? Forcing the client to deal with the SE and sales tax issues is what I am leaning towards to keep it clean.

Thanks for the posts and keep them coming if there is more to add.

[Lion]

Mileage

Your client isn't going to switch to mileage on his personal return. He can continue to use actual. But, the corp can have an accountable plan to reimburse its employee. The employee can turn in an expense account using mileage. The corp deducts; the employee does not report reimbursements. Don't know if tool reimbursements are possible.