Sale or Lease?

[OldJack]

Question: Can a C-corp lease owned equipment
to non-related party with a purchase option of
$1 at end of the lease and still report the
equipment as a completed sale in the first year
of the lease?

Purpose of the lease is to retain ownership title
in case the buyer/lessee defaults on installment
payment or files bankruptcy.

Related research quotes:

Conditional sales contract-
Whether an agreement is a conditional sales contract
depends on the intent of the parties. Determine
intent based on the provisions of the agreement
and the facts and circumstances that exist when you
make the agreement. No single test, or special
combination of tests, always applies. However, in
general, an agreement may be considered a
conditional sales contract rather than a lease
if any of the following is true.

1. The agreement applies part of each payment
toward an equity interest you will receive.

2. You get title to the property after you make a
stated amount of required payments.

3. The amount you must pay to use the property
for a short time is a large part of the amount you
would pay to get title to the property.

4. You pay much more than the current fair
rental value of the property.

5. You have an option to buy the property at a nominal
price compared to the value of the property when you
may exercise the option. Determine this value when
you make the agreement.

6. You have an option to buy the property at a nominal
price compared to the total amount you have to pay
under the agreement.

7. The agreement designates part of the payments
as interest, or that part is easy to recognize as interest.

An election not to have the installment method apply
to a sale is made by reporting an amount realized
equal to the selling price (including the full face amount
of any installment obligation) on the tax return filed for
the year the sale occurs. [Reg § 15A.453-1(d)(3)(i)]

[BOB W]

Yes...

... you can report it in full in the year of sale. The sales needs to account for interest as well, on the "booked" note receivable.

[OldJack]

Thanks for the reply Bob. I have always had clients that were lessees and not the lessor. I assumed if the lessee could treat as a purchase the lessor should be able to treat as a sale. All other opinions would be appreciated.