CLFP EXAM - Classification & Terminology
in Leasing | 100% Correct Answers | Verified
| Latest 2024 Version
Helps avoid tax abuse by defining what is not a lease for tax purposes. - ✔✔What is significant about IRS
Revenue Ruling 55-540?
Per IRS Revenue Ruling 55-540, what are the rules that if present prevent a transaction from being a
lease for tax purposes? - ✔✔
1). Any portion of the periodic payment is equity,
2.) lessee automatically acquires title upon making scheduled payments
3.) the total amount, which a lessee is required to be paid is an inordinately large portion of the total
sum to buy the equipment,
4.) Nominal purchase option
5.) some portion of the payment is designated interest
What are the tax benefits of a lease for the LESSOR? - ✔✔
1.) all rental streams would be taken into income,
2.) tax credits
3.) Allowable depreciations
What are the tax benefits of a lease for the LESSEE? - ✔✔all rental payments can be treated as operating
expenses and be not subject to federal tax
What is IRS Revenue Procedure 75-21? - ✔✔Created in 1975, it was designed to fix the shortcomings of
IRS Revenue Ruling 55-540 which tried to defined a contract of sale but did not did not include the
attributes of a lease.
Per IRS Revenue Procedure 75-21, and later changed by Revenue Procedure 2001-28, what are the
attributes of a lease "for advanced ruling purposes only"? - ✔✔1.) Risk - lessor must contain
unconditional risk during term;
, 2.) Right to Buy - Lessee may not have a right to buy at less than FMV,
3.) Investment: The lessee may not invest in the property;
4.) Loans: The lessee may not lend money to the lessor to buy the property;
5.) Profit: The lessor must show it is making a profit apart from the tax deduction
What may a transaction be labeled if it does not qualify for as a lease per Revenue Procedure 2001 -28? -
✔✔Financing, conditional sales contract, a capital lease, a finance lease, a lease intended for security,
money over money transaction or purchase money security agreement, loan or non-tax lease.
Does Revenue Procedure 2001-28 help in determining federal tax treatment of a transaction? - ✔✔No.
This procedure is used for "advanced ruling purposes only" and does not help with federal tax treatment
and should not be used for audit purposes
What is the purpose of FASB? - ✔✔To guide the format or financial statements and GAAP.
What is FASB #13? - ✔✔Issued in 1976, it set fourth
1.) four criteria by which to classify a lease as either a capital lease or an operating lease,
2.) how each was to be treated on the financial statement,
3.) for both the lessee and lessor
What later replaced FASB 13? - ✔✔Accounting Standards Codification replaced with ASC 840 (2009)
Per ASC 840, what is a capital lease? - ✔✔A lease with a purchase agreement and also meets any one of
the four (4) criteria requirements.
How is the lessee supposed to account for a capital lease? - ✔✔1.) Show the equipment as an asset and
2). show the stream of payments as their respective portion of short and long term debt.
3.) Only the portion of the payment that is related to interest and depreciation can be expensed
in Leasing | 100% Correct Answers | Verified
| Latest 2024 Version
Helps avoid tax abuse by defining what is not a lease for tax purposes. - ✔✔What is significant about IRS
Revenue Ruling 55-540?
Per IRS Revenue Ruling 55-540, what are the rules that if present prevent a transaction from being a
lease for tax purposes? - ✔✔
1). Any portion of the periodic payment is equity,
2.) lessee automatically acquires title upon making scheduled payments
3.) the total amount, which a lessee is required to be paid is an inordinately large portion of the total
sum to buy the equipment,
4.) Nominal purchase option
5.) some portion of the payment is designated interest
What are the tax benefits of a lease for the LESSOR? - ✔✔
1.) all rental streams would be taken into income,
2.) tax credits
3.) Allowable depreciations
What are the tax benefits of a lease for the LESSEE? - ✔✔all rental payments can be treated as operating
expenses and be not subject to federal tax
What is IRS Revenue Procedure 75-21? - ✔✔Created in 1975, it was designed to fix the shortcomings of
IRS Revenue Ruling 55-540 which tried to defined a contract of sale but did not did not include the
attributes of a lease.
Per IRS Revenue Procedure 75-21, and later changed by Revenue Procedure 2001-28, what are the
attributes of a lease "for advanced ruling purposes only"? - ✔✔1.) Risk - lessor must contain
unconditional risk during term;
, 2.) Right to Buy - Lessee may not have a right to buy at less than FMV,
3.) Investment: The lessee may not invest in the property;
4.) Loans: The lessee may not lend money to the lessor to buy the property;
5.) Profit: The lessor must show it is making a profit apart from the tax deduction
What may a transaction be labeled if it does not qualify for as a lease per Revenue Procedure 2001 -28? -
✔✔Financing, conditional sales contract, a capital lease, a finance lease, a lease intended for security,
money over money transaction or purchase money security agreement, loan or non-tax lease.
Does Revenue Procedure 2001-28 help in determining federal tax treatment of a transaction? - ✔✔No.
This procedure is used for "advanced ruling purposes only" and does not help with federal tax treatment
and should not be used for audit purposes
What is the purpose of FASB? - ✔✔To guide the format or financial statements and GAAP.
What is FASB #13? - ✔✔Issued in 1976, it set fourth
1.) four criteria by which to classify a lease as either a capital lease or an operating lease,
2.) how each was to be treated on the financial statement,
3.) for both the lessee and lessor
What later replaced FASB 13? - ✔✔Accounting Standards Codification replaced with ASC 840 (2009)
Per ASC 840, what is a capital lease? - ✔✔A lease with a purchase agreement and also meets any one of
the four (4) criteria requirements.
How is the lessee supposed to account for a capital lease? - ✔✔1.) Show the equipment as an asset and
2). show the stream of payments as their respective portion of short and long term debt.
3.) Only the portion of the payment that is related to interest and depreciation can be expensed
