Which of the following leases is NOT likely to be viewed as a lease from the perspective of the Internal Revenue Service?
A) A 20-year lease for an asset having an economic life estimated to be 40 years
B) A lease offering a renewal option based on the asset's remaining value at the time of the renewal
C) A lease providing for a purchase option at the end of the lease period for a nominal sum
D) A leveraged lease in which the lessor contributes 40% equity

Question

Quizplus · Accepted Answer

A lease that includes a purchase option for a nominal sum at the end of the lease term is often viewed by the IRS as a purchase agreement rather than a true lease. This is because the nominal purchase option makes it highly likely that the lessee will buy the asset, effectively transferring the benefits and burdens of ownership during the lease term.

Which of the Following Leases Is NOT Likely to Be