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CLFP 2020 - CH 1 - History & Overview WITH 100- SURE ANSWERS
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CLFP 2020 - CH 1 - History & Overview WITH 100- SURE ANSWERS
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CLFP 2020 - CH 1 - History & Overview WITH 100% SURE
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Terms in this set (50)
a written code of rules that guided the ancient society of Babylon; dates back to
Code of Hammurabi
1700 B.C.
Ancient civilizations such Greeks, Romans, Egyptians and Phoenicians used leasing
Ancient History
to used equipment owned by another party for fair compensation.
produced leases on clay tablets for ag tools, land and water rights, oxen and other
Sumerians
animals. 4000 years ago
Norwegians and Normans In 1066, they leased ships and crews to form a fleet and invade England.
In 1284 AD, was written to deal directly with the leasing of personal property. Was
Statute of Wales
clarified by statute in 1571 to define who owned the leased equipment.
Onset of of Industrial Revolution provided more opportunities for leasing. The
Industrial Revolution railroad industry in the 1800's brought growth of leasing particularly in US as they
sought financing for laying track, locomotives and railcars.
Financing for railroad industry provided by investors through equipment trusts.
Railroad equipment trusts set up, issued, and administered by banks or trust companies
Most popular railroad finance plan, a precursor of today's conditional sales contract,
The Philadelphia Plan equipment finance agreements, and money-over-money leases. Transferred
ownership to the railroad company at end of contract term
Formed in the early 1900's. Realized that railroad companies and other types of end-
Independent rail equipment leasing users were not interested in long-term ownership, so began offering short-term
companies contracts or return equipment to Lessor. Title returned retained by Lessor Beginning
of true or operating leases.
manufacturers who saw the benefits of providing financing for their products, so they
Captives set up their own finance companies. Also provided opportunity to retain control of
their proprietary equipment (e.g. Bell Telephone)
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WW2 government used these contracts, allowing government contracts to earn a
limited and fixed profit over their costs, which once again made leasing attractive.
cost-plus contracts The lease payment became part of the cost and contractor lessened its risk by not
owning government contract-specific equipment. Today, government leasing is a
specialized field.
1953, gave the equipment owner the ability to accelerate depreciation. Increasing tax
deductions early in the life of asset and deferring taxable income to later years, this
Section 167 of Internal Revenue Code
tax code was intended to encourage capital spending and enhance the benefits of
ownership.
Formed in 1954. Became the the first general equipment leasing company. Its
U.S. Leasing Corporation contracts typically transferred title to lessees upon exercise of nominal purchase
option.
In 1955, As more leasing companies entered the market with new products, a need
for a true lease definition for tax purpose emerged. With this ruling, a transaction was
Revenue Ruling 55-540 classified as a true lease ONLY if it met all of specified conditions. If ANY of the
conditions were not met, the IRS construed the financing to be a conditional sales
contract and tax benefits belonged to Lessee.
In 1962, used to stimulate economic development, this tax credit was introduced to
provide purchasers of capital equipment with a tax credit they could use to offset
Investment Tax Credit (ITC) their total tax liability to the government. The tax credit was initially set at 7 percent,
and was based on a percentage of the equipment cost. The amount could be
deducted, in whole from the net tax due.
Permitted banks to own equipment that they could lease to their clients, allowing
1963 Comptroller of Currency
them to enter the equipment finance markets.
this amendment was enacted and allowed banks to form holding companies. These
1970 Amendment to The Bank Holding Act holding companies could engage n non-traditional financing activities such as
equipment leasing.
In 1972, Congress introduced this law which created hundreds of asset categories
and prescribed useful lives for the depreciating assets. Prior to this lessors had to
Asset Depreciation Ranges (ADR) guess the useful life and if they chose a shorter life than IRS though reasonable, they
risked losing depreciation benefits. This provided a method that could not be
challenged by the IRS.
Created in 1976, Financial Accounting Standards Board, which laid out criteria on
FASB
how to classify a lease as either capital lease or operating lease (FASB no. 13).
1981, Revision of 1954 IRC, created to stimulate economy with lessened tax burdens.
Economic Recovery Act of 1981 (ERTA) This law introduced ACRS and a 90-day window for transference of Investment Tax
Credit (ITC) and a vesting of ITC at 20% per year.
In 1981, provided by ERTA, replaced the complex ADR depreciation Ranges system.
This new system only had 5 classes of percentage of the cost to be written off in
Accelerated Cost Recovery System (ACRS)
each year. This new system enabled the owner/lessor to fully depreciate an asset
without having to estimate useful life and salvage value.
1982, passed to increase the tax revenues lost under ERTA, repealed Safe Harbor
Tax Equity and Fiscal Responsibility Act of Leases, replacing with "Finance Leases", which liberalized the true leases guidelines
1982 (TEFRA) of IRS Procedure 75-21. ITC increased to 10% by ERTA and vesting term of 7 years
reduced to 5 years.
In 1975, this procedure was provided to address how IRS treats a tax lease for from
IRS Procedure 75-21 Lessor's viewpoint. It defines in detail criteria which must be met for a transaction to
be construed as a true tax lease.
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