Looking for some confirmation or further direction on some questions that my client has raised regarding a cattle lease arrangement.
Client leases 55 head of cattle and they get paid for feeding, breeding, and taking care of the animals. At the end of the lease 8 cows have died or need to be culled. The lease agreement requires that these cattle are replaced to satisfy the terms of the lease.
Questions:
1. Client replaces the 8 cattle with some from his own raised stock that he'd planned to sell. After some vigorous discussion, client has come around to my thoughts that there is no deduction to be taken here other than the cost of raising - feed, vet, etc. and the lost income is just lost income such as when a cow dies. Am I missing anything here?
2. Since the lease required that the number of viable cattle be kept at 55, there seems to be an incident of ownership of leased property. I've never dealt with leased property that possessed incidents of ownership - it is a single item or the entire list of requirements that must be met? Is there a basis of claiming a loss?
3. Should I be depreciating the leased cattle in this situation? What would be the basis since there is no purchase or lease payment?
It all seems pretty straightforward at first, but then I begin to listen to the client's rationale and question myself. Perhaps I am over-thinking it too. Either way I'd appreciate another's take and references on the situation. Thank you.
Client leases 55 head of cattle and they get paid for feeding, breeding, and taking care of the animals. At the end of the lease 8 cows have died or need to be culled. The lease agreement requires that these cattle are replaced to satisfy the terms of the lease.
Questions:
1. Client replaces the 8 cattle with some from his own raised stock that he'd planned to sell. After some vigorous discussion, client has come around to my thoughts that there is no deduction to be taken here other than the cost of raising - feed, vet, etc. and the lost income is just lost income such as when a cow dies. Am I missing anything here?
2. Since the lease required that the number of viable cattle be kept at 55, there seems to be an incident of ownership of leased property. I've never dealt with leased property that possessed incidents of ownership - it is a single item or the entire list of requirements that must be met? Is there a basis of claiming a loss?
3. Should I be depreciating the leased cattle in this situation? What would be the basis since there is no purchase or lease payment?
It all seems pretty straightforward at first, but then I begin to listen to the client's rationale and question myself. Perhaps I am over-thinking it too. Either way I'd appreciate another's take and references on the situation. Thank you.
Comment