The petitioner, a doctor, had various entities that he controlled that utilized certain items of equipment. The petitioner acquired a CT scanner with a five-year life. The scanner was leased by one of the petitioner's entities that provided that the lessee could buy the scanner at a below market price. One of the entities deducted the rent amount received for the "lease" of the scanner and another entity deducted depreciation, with both deductions flowing through to the petitioner. The IRS denied the deductions and the court agreed. The court determined that the substance of the transaction was a conditional sale primarily based on the fact that the lessee had the option at the end of the lease term to buy the scanner at a nominal (below market) price. The petitioner also formed, with two others, a limited liability company (LLC) that was taxed as a partnership. The LLC managed the scanner. The LLC, for the tax year at issue, had a large loss which petitioner claimed on his own return. IRS denied the denied the deductible loss due to lack of basis in the LLC. The petitioner claimed he had sufficient basis in the LLC via the scanner "lease". The court disagreed, holding that the lease was not a partnership liability because the "lease" transaction was a conditional sale that was not transferred to the LLC. The scanner transaction was specifically non-transferable and non-assignable. Coastal Heart Medical Group, Inc., et al. v. Comr., T.C. Memo. 2015-84.
CALT does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. CALT's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.