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 percent equity

Question

Quizplus · Accepted Answer

A lease providing for a purchase option at the end of the lease period for a nominal sum is likely to be viewed as a financing arrangement and not a lease by the Internal Revenue Service. This is because the lessee effectively owns the asset at the end of the lease period and is effectively financing the purchase of the asset through the lease payments. The other options are all typical lease arrangements that would be recognized by the IRS.

Which of the Following Leases Is Not Likely to Be