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CLFP EXAM - History & Purpose of Leasing
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CLFP EXAM - History & Purpose of Leasing
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CLFP EXAM - History & Purpose of LeasingWhen was the Tax Era Correct Ans-1955 to 1986 in which the government introduced may
leasing tax changes including IRS 55-540, investment tax credits, alternative minimum tax
(AMT), and asset depreciation ranges (ADR)
What was IRA 55-540? Correct Ans-Defined True Lease for tax purposes. 1) no equity 2)
ownership doesn't pass 3) amount paid not significant portion of purchase price 4) rental
payments not significantly higher than FMV 5) no nominal purchase option 6) no portion of
payment characterized as interest
What are investment tax credits (ITC)? Correct Ans-Introduced in 1962, ITC provided
purchasers of equipment with tax credits to offset fed tax liability. Lessors that owned True
Leases got the tax benefit. ITC could be added or removed by government depending on
whether they need tax revenue or wanted to encourage capital investment.
What is the Tax Reform of 1986? Correct Ans-Eliminated ITC and resulted in businesses
having to keep two sets of books, accounting and tax.
What is Alternative Minimum Tax (AMT)? Correct Ans-Companies calculate taxable income
by subtracting expenses from revenue? However, with the addition of AMT IN THE tax Reform
of 1986, a company would have to pay the greater of regular tax or AMT. in essence, AMT would
limit equipment depreciation.
, What are Asset Depreciation Ranges (ADR)? Correct Ans-In 1972, congress introduced
hundreds of asset classes and prescribed useful lives for depreciating those assets.
What is the Bank Holding Company Act? Correct Ans-In 1963, the Comptroller of currency
gave banks to ok to lease personal property. The Bank Holding Company Act allowed banks to
form holding companies to conduct non traditional business such as leasing
What is the Competitive Quality Banking Act? Correct Ans-Passed in 1987, the act, among
other thing, removed the max residual value limit from the bank's lessor business. This made
bank leasing programs more competitive.
Currently how big is the leasing industry? Correct Ans-American companies acquire $1
billion in equipment each year of which 55% is leased.
What % of companies lease? Correct Ans-8 of 10
How old is leasing? Correct Ans-4000 years ago the Sumerians produced leases on clay
tablets for ag tools, water rights and animals. The Code of Hammurabi is an ancient record of
Babylonian dating back to 1700 bc
What is the Statue of Whales? Correct Ans-In 1284 ad, the Statue of Whales was writtento
deal directly with leasing of personal property. It was further clarified in 1571 by a statute that
defined who owned leased equipment.
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