Washington Law Review


During 1959 two cases involving the right to deduct as an "ordinary and necessary" business expense rental payments made pursuant to equipment lease contracts came before the Courts of Appeals of the Eighth and Ninth Circuits. Both taxpayers claimed the deductions were permissible by authority of section 162 (a) (3) of the 1954 Internal Revenue Code. In both cases the Commissioner of Internal Revenue determined that the "lease" agreements were actually conditional sales contracts, the taxpayer thereby having title to the property, or that with each "rental" payment the taxpayer acquired an equity in the property. The Commissioner disallowed the expense deduction and held that the cost of the property should be capitalized. This determination was upheld by the Tax Court and each taxpayer appealed.

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