Ed Bobit's Publisher's Page

"Since government is not an exact science, prevailing public opinion concerning the evils and the remedy is among the important facts deserving consideration; particularly when the public conviction is both deep-seated and widespread and has been reached with deliberation. " Louis D. Brandeis: Dissent, Truax V. Corrigan, 257 U.S. 312 (1921).

A new and serious threat to finance leasing, as we know it today and have known it since its inception, has loomed into our midst in the form of a new interpretation by the Internal Revenue Service. It could shatter our entire leasing structure and deserves the attention and action of every lessor and lessee w i t h in our industry.

Fortunately, Alvin Zises, the able leader of Bankers Leasing and CNA Nuclear Leasing in Boston (and a man of vision and altruistic initiative) has led a bevy of other market leaders to voice their self-interest enlightenment to the IRS. We at AF sensed the threat to the basic and fundamental structure of the finance lease with the possible new ruling that primarily might eliminate the many privately-issued leasing r u l i n g s applicable to tax-leveraged leases and drafted a letter outlining our concern and with a substantiation of facts surrounding the issue of the IRS to consider. Here is our letter.

The Honorable Frederick Hickman
Assistant Secretary of the
Treasury for Tax Policy
Treasury Department
Washington, D.C.

Dear Mr. Hickman:

I am editor and publisher of a number of publications devoted to the motorized equipment field, including t h e magazines, Automotive Fleet, School Bus Fleet, and Trucking Business.

Each year our Company surveys the use of leasing of passenger cars, trucks, and other motorized equipment to ascertain trends in the acquisition of such equipment whether owned, rented or leased.

I understand that the Internal Revenue Service intends to issue a published ruling which will include criteria to determine whether or not a transaction is a lease. We further understand that such criteria, by implication or omission, may cast doubt on certain lease transactions which have wide usage in the motorized equipment field. Consequently, I would like to present you some facts regarding a form of lease, called a finance lease, which seems to be the most widely used in the motor vehicle fleet leasing business. This form of finance lease is a so-called "net and full-payout" lease under which the lessor is assured of the full recovery of his investment by means of a rental adjustment.

The rental adjustment has a business and not a tax purpose. Because the vehicle is in the continued possession and control of the lessee, the lessee is responsible for the reduction in value occasioned by use or abuse of the property. To the extent that the property suffers a greater decline in value than originally anticipated at the time the transaction was entered into, the lessee makes up the deficiency through an additional rental payment. To the extent that the lessee who is responsible for maintenance takes adequate care of the property, he obtains a credit upon termination of the lease and sale of the vehicle if the vehicle is sold for more than the anticipated amount. The lessee, through the use of the rental adjustment, assures the lessor of recovering his exact diminution in the economic value of the property. The lessor is assured of a specified return.

In the years set forth below, the following figures constitute the results of our surveys as to the percentage of passenger cars and trucks which were leased in commercial and business fleets under such finance leases:

Type of Equipment 1971 1970 1968 1966 1964
Cars 60% 62% 56% 62% 76%
Trucks 44% 43% 38% 31% 31%

In 1971, 732,000 passenger cars were so leased of 1,231,000 in leased business fleets of 25 or more cars. In the same year 254,000 of 584,000 trucks were so leased.

As is obvious from the figures above, any published ruling which casts doubt upon the nature of this widely-used form of low-cost lease will be detrimental to the interests of business and the public.

Sincerely,
E. J. Bobit
President and Publisher

We urge every interested industry man to join in this opportunity by drafting his own message; it just could save finance leasing as we now know it.