Rev. Rul. 55-25

The taxpayer and a bank entered into a `Trust Agreement' providing that the latter as `trustee' would purchase and `lease' to the taxpayer certain automotive equipment. However, the trustee will hold only bare legal title to the vehicles and the taxpayer will have possession as well as all the rights and obligations relating thereto during their useful life and also any salvage realized upon their final disposition. The taxpayer will make stipulated payments termed `rent' to the trustee, which will be equal to the costs incurred by the bank in acquiring the vehicles as well as interest and incidental expenses. The agreement further provides that the taxpayer may at any time acquire full title to the vehicles by paying the balance of the costs then remaining unpaid. Held, that the taxpayer is virtual owner of the vehicles and is entitled to deduct depreciation thereon which should be spread over the useful life of the equipment rather than over the stated `lease' period. The payments termed `rent' in the agreement constitute part payment for capital items and should be capitalized by the taxpayer insofar as they represent capital payments