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CLFP Part 1 History and Purpose of Leasing-Qs & As
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CLFP Part 1 History and Purpose of Leasing-Qs & As
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CLFP Part 1 History and Purpose of Leasing-Qs& As
WW II era leasing activity Correct Ans-After World War II as manufacturers sought to
upgrade equipment and modernize operations, leasing continued to grow as a viable financing
tool, leading to the modern era of leasing. Beginning of vendor leasing programs as we know
them today.
General trends in the development of modern leasing Correct Ans-1. Government efforts to
stimulate the economy
2. advancement of technology in the area of business equipment
emergence of IRS section 167 giving equipment owners the ability to accelerate depreciation to
enhance benefits of ownership and encourage capital spending. Companies in need of large and
costly equipment could not afford outright purchase. Leasing was a more attractive option.
Bank involvement in leasing Correct Ans-1963 banks entered leasing with the OCC giving the
go ahead to own and lease personal property.
1970 amendment to the bank holding company act allowed banks to form holding companies
engaged in non-traditional financing activity such as leasing.
1987 Competitive Equality Banking Act passed into law - removing the maximum residual value
limit for a portion of bank lessors business allowing them to be competitive.
, Development of accounting standards for leasing Correct Ans-1976 the Federal Accounting
Standards Board issued statement number 13, FASB 13, which set forth guidelines for Lessor
and Lessee book accounting, giving greater uniformity to the financial reporting of leases.
The evolution and content of tax rules governing leasing Correct Ans-1955 IRS Revenue
Ruling 55-540 (what is a true lease?)
1962 Investment Tax Credit (ITC) Introduced allowing lessors to offset tax liability if owner of
true lease
1986 Tax Reform Act (TRA 86) Eliminated ITC and Companies began keeping 2 sets of books one
for accounting and one for tax; introduce Alternative Minimum Tax (AMT) which limits
depreciation
1972 Asset Depreciation Ranges (ADR) defining depreciable lives for hundreds of asset
categories
1981 Economic Recovery Act (ERTA) to stimulate economy by reducing tax burden for
businesses; introduced Accelerated Cost Recovery System (ACRS) which replaced complex ADR
depreciation system reducing to 5 classes of assets ranging fro 3 to 15 year life. No more
estimating useful life.
1982 Tax Equity and Fiscal Responsibility Act introduced to increase tax revenues lost under
ERTA Repealed Safe Harbor Leases, replacing with FInance Leasess.
1984 Deficit Reduction Act (DRA) introduced time value of money as a method for lessors to
adjust rental streams for tax purposes. Reduced depreciation benefits. TRAC leases recognized
as true leases.
BASICALLY the 80's were just crazy for tax and leasing. Almost as crazy as 80's hair styles.
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