Which item is NOT listed as part of the burden of proof for a true lease?

Which item is NOT listed as part of the burden of proof for a true lease?

• A. Pass title
• B. Bargain purchase option
• C. Term substantially equivalent to useful life
• D. Intent to avoid tax

Answer: (D)

To determine if a lease is a true lease, focus on economic substance indicators that show whether ownership risks and rewards stay with the lessor or pass to the lessee. The typical burden-of-proof criteria include signs that title passes to the lessee (or the presence of a bargain purchase option that could lead to ownership) and a lease term that is substantially the asset’s economic life. These factors, along with the present value of payments aligning with the asset’s value, reflect how control and risk are allocated in the arrangement. The idea of intent to avoid taxes is not part of these objective indicators; motive and tax avoidance aspirations don’t establish the economic substance of a true lease. So, the item not listed among the burden-of-proof criteria is the intent to avoid tax.

To determine if a lease is a true lease, focus on economic substance indicators that show whether ownership risks and rewards stay with the lessor or pass to the lessee. The typical burden-of-proof criteria include signs that title passes to the lessee (or the presence of a bargain purchase option that could lead to ownership) and a lease term that is substantially the asset’s economic life. These factors, along with the present value of payments aligning with the asset’s value, reflect how control and risk are allocated in the arrangement. The idea of intent to avoid taxes is not part of these objective indicators; motive and tax avoidance aspirations don’t establish the economic substance of a true lease. So, the item not listed among the burden-of-proof criteria is the intent to avoid tax.