Dodge v. Comm'r of Internal Revenue
| Decision Date | 06 April 1981 |
| Docket Number | Docket No. 3288-79. |
| Citation | 76 T.C. 547 |
| Parties | SWIFT DODGE, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
During the years in issue, petitioner, an automobile dealership, borrowed funds from banks to be used for the acquisition of certain motor vehicles. At the same time, petitioner and third parties executed documents entitled “Lease Agreements,” pursuant to which each third party was granted the use of a vehicle for a definite term, generally 36 months. Held: The “Lease Agreements” are not conditional sales contracts. Rather, these documents, and the transactions represented thereby, in form and substance are leases. Thomas E. Smail, Jr., for the petitioner.
Robert W. Towler, for the respondent.
Respondent determined deficiencies in petitioner's income taxes for taxable years 1974 and 1975 in the amounts of $25,922.84 and $22,168.37, respectively.
The issue for decision is whether in calendar years 1974 and 1975 petitioner is entitled to a section 38, I.R.C. 1954,1 investment credit with respect to vehicles acquired by petitioner for use by other persons pursuant to the terms of an agreement entitled “Lease Agreement.”
Some of the facts have been stipulated and are found accordingly.
Swift Dodge (petitioner), a California corporation, had its principal place of business in Sacramento, Calif., at the time of filing its petition in this case. Petitioner filed its Federal corporate income tax returns for the calendar years 1974 and 1975 with the Internal Revenue Service Center, Fresno, Calif.
Throughout 1974 and 1975, Swift Dodge was engaged in the automobile dealership business. Petitioner also engaged in this business in the years prior and subsequent to the years here in issue.
Swift Leasing Co. operated as a separate corporate entity during its fiscal year September 1, 1972, through August 24, 1973. Throughout this year, Swift Leasing Co. purchased various vehicles for subsequent use by third parties. Swift Leasing Co. required each third-party user to enter into an agreement entitled “Lease Agreement” prior to his receipt of the vehicle.
During its fiscal year ending August 24, 1973, Swift Leasing Co. was merged into Swift Dodge, and the transfer of its assets to Swift Dodge was completed by August 24, 1973. After the merger, petitioner corporation included sales and leasing divisions, the latter of which petitioner referred to by the name of “Swift Leasing Company.” The Swift Leasing Co. operations were substantially smaller than petitioner's sales division. Both prior and subsequent to the merger, the Swift Leasing Co. activities were physically located in a building apart from the Swift Dodge sales business. In the years in issue, petitioner maintained separate bookkeeping and computer operations for each division. Accordingly, the salaries of the personnel working in the sales and Swift Leasing Co. divisions in part were based upon the profit generated by the particular department with which the employee was affiliated.
In 1974 and 1975, on behalf of its division referred to as “Swift Leasing Company,” Swift Dodge purchased vehicles for use by other parties. As had been the practice when Swift Leasing Co. was a separate corporation, customarily the prospective vehicle user indicated to petitioner the specific Chrysler or non-Chrysler vehicle desired and applied to petitioner to arrange for both the execution of a “Lease Agreement” and the use of the vehicle. If the person selected a Chrysler motor vehicle, petitioner determined whether the particular vehicle was in its present inventory, which was the same inventory as that from which petitioner sold vehicles to the general public. When the Chrysler vehicle was not part of petitioner's existing inventory, petitioner purchased the vehicle from another dealer. On the other hand, if a person desired a vehicle manufactured by a corporation other than Chrysler Corp., petitioner purchased the vehicle from an appropriate non-Chrysler dealer.
To obtain moneys with which to purchase the vehicles from Chrysler Corp. and other dealers, petitioner borrowed funds from the Bank of America National Trust & Savings Association (Bank of America) and the United California Bank. Often petitioner borrowed money equal in amount to the purchase price of the vehicle; however, the amount borrowed at any one time depended upon petitioner's general operating capital requirements.2
On September 24, 1971, the Bank of America and Charles O. Swift, signing on behalf of Swift Leasing Co., entered into a “Leasing Company Agreement.” This set forth the conditions under which the Bank of America would lend moneys to Swift Leasing Co.3 Pursuant to the “Leasing Company Agreement” the bank promised to advance funds to Swift Leasing Co. under lines of credit if Swift Leasing Co. granted the bank a security interest in those motor vehicles subsequently purchased with the loaned funds. Swift Leasing Co. tendered the required security interest to the Bank of America pursuant to a “Security Agreement and Assignment of Rentals” executed on November 30, 1971, by Charles O. Swift, president, on behalf of Swift Leasing Co., debtor.4 Included in the provisions of the “Security Agreement and Assignment of Rentals,” was a warranty to the Bank of America that Swift Leasing Co. was the—-
absolute owner of all collateral [the listed motor vehicles]* * * and that the collateral is free and clear of and will be kept free and clear of all liens, levies, encumbrances and adverse claims of any kind or character; provided, however, that Debtor may lease the same, and as additional security * * * Debtor assigns, transfers, and sets over to Secured Party all rentals under any such lease or leases. 5
Pursuant to both the “Leasing Company Agreement” and the “Security Agreement and Assignment of Rentals,” each time Swift Leasing Co. and a vehicle user executed a “Lease Agreement,” petitioner assigned the “Lease Agreement” to the lending institution as security and signed a promissory note with duration of approximately the same length as the particular “Lease Agreement.”6
In its fiscal year ending August 24, 1973, Swift Leasing Co. entered into 210 “Lease Agreements,” of which 148 are in dispute.7 In 1974, petitioner executed with various third parties 137 “Lease Agreements,” of which 105 are in dispute, and in 1975 petitioner entered into 159 such agreements, of which 130 are in dispute. In the years in issue, the “Lease Agreements” generally were written for terms of 36 months.8 None of the agreements restricted the vehicles for use in a trade or business or for the production of income.
Chrysler Corp. distributed throughout the United States and Canada the “Lease Agreement” form utilized by Swift Leasing Co. in its fiscal year ending August 24, 1973, and by petitioner in the calendar years 1974 and 1975. Substantially all of these agreements contained identical boilerplate provisions. All except three of the disputed “Lease Agreements” contained an “open end” notation on the upper right corner of the first page.
The text of the “Lease Agreements” executed in the years in issue included information on the vehicle involved; the amount and terms of payment; the party responsible for maintenance, repairs, insurance, taxes, licensing, and registration; a statement of the places for delivery of the vehicle and of its return upon premature termination, regular termination, or any extension thereof; a premature termination provision; clauses regarding the use of the vehicles, indemnity, damage responsibilities, default, attorneys' fees-costs-waiver; and miscellaneous other provisions. In relevant part, the “Lease Agreements” specified the following:
LEASE AGREEMENT *ss
This agreement is one of leasing only and the Lessee shall not have or acquire any right, title, or interest in the vehicle except the right to use or operate it as provided herein.
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Thomas v. Comm'r of Internal Revenue (In re Estate of Thomas)
...fair market value at the end of the lease term.‘ 63 T.C. at 50. 39 The facts here are distinguishable from those in Swift Dodge v. Commissioner, 76 T.C. 547 (1981), revd. 692 F.2d 651 (9th Cir. 1982), where our holding that the lease agreements before use were not in fact conditional sales ......
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Holden v. Comm'r, T.C. Memo. 2015-131
...lease agreements as conditional sales contracts. See, e.g., Swift Dodge v. Commissioner, 692 F.2d 651, 654 (9th Cir. 1982), rev'g 76 T.C. 547 (1981); United Circuits, Inc. v. Commissioner, T.C. Memo. 1995-605, 70 T.C.M. (CCH) 1619, 1621-1622 (1995); Lieber v. Commissioner, T.C. Memo. 1993-3......
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Stacom v. Commissioner
...[Dec. 40,410], 81 T.C. at 203; but see Swift Dodge v. Commissioner [82-2 USTC ¶ 9675], 692 F.2d 651, 652 (9th Cir. 1982), revg. [Dec. 37,805] 76 T.C. 547 (1981) (citing Frank Lyon); American Realty Trust v. United States [74-2 USTC ¶ 9528], 498 F.2d 1194, 1198-1199 (4th Cir. 1974) (cited wi......
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Levitt v. Comm'r of Internal Revenue (In re Estate of Levitt)
...rule based upon the benefits and burdens of ownership in light of all the relevant facts and circumstances. (See, e.g., Swift Dodge v, Commissioner, 76 T.C. 547 (1981)). But they did not. Instead, Congress decided to impose two hard-and-fast tests, one of which petitioner herein has failed.......
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Equipment Leasing & Leveraged Leasing: an Overview
...concurring. A distinction between Frank Lyon Co. and Hilton noted by the Tax Court was further developed in Swift Dodge v. Commissioner, 76 T.C. 547 (1981), where a car dealership was held to be the owner of leased cars in circumstances in which that dealer had no risk of loss and in which ......