Opinion ID: 161696
Heading Depth: 2
Heading Rank: 3

Heading: Characterization of the Transaction

Text: Next, the Guaderramas contend that, even if the Tax Court is permitted to examine the substance of the transaction, it erred in concluding that the transaction was not a bona fide lease. While the Tax Court’s factual findings on this issue will stand unless the Guaderramas can demonstrate clear error, 6 “[t]he general characterization of a transaction for tax purposes is a question of law.” Frank Lyon Co. v. United States , 435 U.S. 561, 581 n.16 (1978). The Guaderramas’ arguments on this point are assertions unsupported by authority. The Guaderramas cite cases in which a court concluded that a lease was genuine, but they fail to point to any factual parallels that would mandate reaching the same conclusion in the instant case. Conversely, the Guaderramas assert that this case is distinguishable from decisions concluding that a purported lease is in fact a financing agreement, but do not elaborate on or support this assertion. In fact, the cases the Guaderramas claim are similar have marked distinctions from this case, see, e.g., Frank Lyon Co. , 435 U.S. at 577 (lease was genuine where lessor who was liable to bank for mortgage bore real, substantial risk), while the proper analogues are found in those cases they claim are distinguishable. See, e.g., Sun Oil Co. v. Comm’r , 562 F.2d 258, 269 (3d Cir. 6 The Guaderramas have not taken issue with any particular findings of the Tax Court, and we conclude that the court’s findings are supported by the record. -8- 1977) (purported lease was in fact financing arrangement where lessor was insulated from all risks and was guaranteed a particular rate of return, while lessee bore all risks and accrued equity interest in property through lease payments). The arrangement entered into by Mr. Benavidez and the Guaderramas bears many similarities to the transaction analyzed in the Sun Oil decision, and the Tax Court was correct to apply a similar analysis to reach a similar conclusion: that the transaction at issue failed to effect an actual transfer of ownership interests to the lessor; rather, the purported lessor in essence served the role of lender. In determining the nature of the transaction, the Tax Court carefully examined a number of factors, including whether the purchase option would convey the property at its fair market value; which party bore the risks and responsibilities of ownership; and the terms of the lease payments. The Tax Court properly concluded that the salient features of the transaction marked it as a financing arrangement rather than a lease. -9-