Money affects us on all levels, and daily in both our professional and personal lives. Money is a paycheck; it’s the cost of doing business; it’s net profit; it’s return on investment (ROI); it’s a driving force in the fleet market for lessors to find innovative methods to lend at a more advantageous rate; and, unfortunately, it’s also the concern of the Internal Revenue Service.

 Late last November, with unusual zeal, the IRS proposed that the presence of a terminal rental adjustment clause indicates that the agreement is not a lease, disallowing any investment tax credits on finance leases for business and commercial usage. In this new interpretation of Section 210 of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), the IRS is completely and diametrically opposed to the original intent of the act.

Now, nearly three months later, these remarks are written the day after the Treasury hearing in Washington with responses from an august group of vehicle lessors, adhoc committee designees, tax experts, and other leaders. They are also being written before any final ruling or decision has been made. No one really knows when action will be taken or what the result will be, but as one of the speakers offering testimony quipped, “Dealing with IRS bureaucracy is like wrestling with a shadow.”

Importantly, it is time to conduct a “what if” situation. We know that if the IRS withdraws its proposed regulation, all will continue as is albeit with sensitive lessor vigilance. If there is simply a delay for a week or a relatively short period of time, we may be left in limbo, but the ultimate confrontation will surely come. If the IRS does rule by the time you receive this issue, you can look for some dramatic changes.

Anticipation and readiness are watchwords. Yet in the past two days I have spoken with a dozen managers of larger leased fleets, and it shocked me that few possessed more than a mild concerns over the issue that has a strong chance of becoming reality. While it is clear that some lessors feel there is little need to alarm lessees until necessary (when the ruling is confirmed), it would seem that financial vice presidents of these corporate accounts would want to know, specifically, about the possible impact and exactly what the options are. At this particular time, they either do not know or do not appear to care, and to me this is unbelievable.

From my phone conversations with fleet managers, it is evident that they are quite sure that they will not opt for the more expensive closed-end lease to solve their problems; rather, they expect that they would continue to utilize the lessor for purchases and disposal (P&D) plus their expense services. It is rather obvious that lessors have a solidly entrenched professional group of people and services which lessees are not readily able to duplicate.

Leasing companies are truly in the transportation service business, and they have acquitted themselves well with changes in the past. They undoubtedly have the ingenuity to develop proprietary programs around the IRS ruling but are hesitant to announce their presentations until absolutely necessary, since they might lose a competitive edge. Understandably. It all relates to money and the bottom line; the results will be worth recording is fleet history. And you can bet your bottom dollar on it.

 

About the author
Ed Bobit

Ed Bobit

Former Editor & Publisher

With more than 50 years in the fleet industry, Ed Bobit, former Automotive Fleet editor and publisher, reflected on issues affecting today’s fleets in his blog. He drew insight from his own experiences in the field and offered a perspective similar to that of a sports coach guiding his players.

View Bio
0 Comments