From: tel@cbnews.cb.att.com (thomas.e.lester)
Subject: Re: Leasebacks & tax considerations
Organization: AT&T
Date: Thu, 21 Jan 1993 20:06:54 GMT

In article <C1602t.54z@tss.com> burke@tss.com (Jim Burke) writes:
>In article <1993Jan20.141635.16472@cbnews.cb.att.com>, tel@cbnews.cb.att.com (thomas.e.lester) writes:
>
>|> 	First LAw of filing Taxes:  ALWAYS interpret rules as much in
>|> 	your favor as your conscience allows.
>
>This is only true if it is a questionable issue.  If the issue has already
>been covered by a court case, I would suggest abiding by that ruling.
>I don't want to invest thousands of dollars in an airplane leaseback 
>on this kind of strategy, and run the risk of having it cost me
>thousands unexpectedly.  I'd rather know the IRS position on this going in,
>if I can find out what that is.

	Of course you are correct.  I didn't mean to negate or belittle
	your points.  Only that all IRS rulings are questionable and
	many people do get by for years using "favorable interpretation"

	The law states (I think) that if you BELIEVE you are abiding by
	the law, they only asses the back taxes and interest.  They need to
	prove (or think) that you are trying deliberate fraud before they
	asses fines. 
>
>
>|> 	Wrong:  The FBO is my agent hired to do the bookkeeping and
>|> 	scheduling on individual rentals.
>|> 	(my interpretation)
>
>I have spoken to one IRS agent who disagrees with this interpretation.
		^^^^^^^^
	There have been several  news programs that took sets of questions
	to different IRS agents and then compared answers.  I believe the
	number of wrong answers was over 50% and closer to 66%

	Don't let one overzealeous agent deny you a big deduction.

>His interpretation is that the FBO engages in renting the airplane out
>on an hourly basis, with an average rental time of a few hours.  Since
>he is making a profit directly from the markup over the rate he pays you,
>this is _his_ business activity, not yours.  You are simply making your
>plane available to him.  If you have a clause that requires you to give
>30 days notice or something like that before you can get your plane back,
>it is likely to be interpreted that you are leasing your plane to the 
>FBO on a long-term rental basis, not on an hourly basis.  Now, if the
>users sent you a check and you paid the FBO for their scheduling services
>out of those procedes, that would be a different story.  But that's not
>how FBOs work it.  This isn't necessarily my interpretation, mind you, only
>one I've heard from an IRS guy.  I'd like to get to the bottom of what
>is really the case, and my accountant doesn't know.  He consideres it a
>very gray area.

	And it is.  And caution is advisable.   I mearly am trying to
	point out that many people get by with a more liberal interpretation.
	I know a few friends who have leasebacks and claim them as active
	investments.  So, as I stated, do what your conscience allows.

>
>
>|> 	This of course includes the caviat that you do the maintenance
>|> 	(or at least hire the maintenance) and do most of the owner legal
>|> 	stuff.  If you just turn over the plane and sit back and
>|> 	collect monthly checks, then yes it is passive.
>
>Few FBOs will allow the owner to do maintenance.  And most of them have their
>own maintenance shop.  They schedule the maintenance and deduct the cost
>from the procedes before sending you a check.  

    This probably varies with area. most of the lease backs I know of
    require owner maintenance. (i.e. clubs with no full time mechanics)

    I would stay away from any place that decided maintenance for you.
    It is in their interest to inflate the amount of maintenance 
    "required" for your plane.
>
>|> 
>|> 	I would try to get a contract with the FBO to state exactly that
>|> 	they are mearly a booking agent operating on a percentage of fees.
>
>That would be ideal.  Does anyone know of an FBO that does business on this
>basis?  I'd be very interested in them.

	Try to find private clubs in your area.   They normally are
	operated requiring a high degree of owner participation due
	to a lack of full time staff.  Or perhaps you could even start
	your own club.
>
>
>|> 	See rule one.  Can you prove it is NOT a legal shelter ??
>
>People lose court cases and audit disputes all the time.  I use a less
>conservative strategy when the amount of money is relatively small, but
>in the case of a leaseback we are talking potentially about many thousands
>of dollars.  It doesn't matter what I think, its what the IRS may do
>that concerns me.

    All true and good advice. If you are talking a difference of
    "Thousands of dollars" in difference between active and passive
    it sounds like you are expecting or looking for a tax deduction
    i.e. a loss from your lease back.

    I'll lease your plane and give you all the necessary contracts and
    promise you a BIG deduction.     8-}  

    How about it ?????    

    Na,  I didn't think you'd go for it.   Oh well.

	Good luck Jim.


PS:  One serious point.  I would argue that if the IRS is claiming a long term
  rental, then there should be a minimum guarranteed payment to the owner.
  If no such minimum is available, then it indicates no long term arrangement
  and supports the booking agent theory.
  Again, just my humble and unknowing opinion.
-- 
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