Rev. Proc. 81-71

SECTION 1. PURPOSE

The purpose of this revenue procedure is to modify Rev. Proc. 75-21, 1975-1 C.B. 715, Rev. Proc. 75-28, 1975-1 C.B. 752, Rev. Proc. 76-30, 1976-2 C.B. 647, and Rev. Proc. 79-48, 1979-2 C.B. 529 to reflect the enactment of section 168(f)(8) of the Internal Revenue Code by the Economic Recovery Tax Act of 1981, section 201(a), page 256, 275, this Bulletin.

SEC. 2. BACKGROUND

Rev. Proc. 75-21, Rev. Proc. 75-28, Rev. Proc. 76-30 and Rev. Proc. 79-48 set forth guidelines that the Internal Revenue Service will follow for advance ruling purposes in determining whether certain transactions, commonly called "leveraged leases," are, in fact, leases for federal income tax purposes.

Section 201(a) of the Economic Recovery Tax Act of 1981 added section 168(f)(8) of the Code, which establishes criteria for determining whether a transaction constitutes a lease for federal income tax purposes. Section 168(f)(8) provides that if the requirements of subparagraphs (A) and (B) of section 168(f)(8) are met the agreement will be classified as a lease for federal income tax purposes.

Section 168(f)(8)(C) provides that if the requirements of subparagraphs (A) and (B) are met in a transaction described in subparagraph (A), no other factors will be taken into account in determining whether (1) the agreement will be treated as a lease and (2) the lessor will be treated as the owner of the property and the lessee will be treated as the lessee of the property for federal income tax purposes.

The purpose of section 168(f)(8) of the Code was to create a safe harbor that guarantees that a transaction will be characterized as a lease. Specifically, Congress intended section 168(f)(8), when it is applicable, to operate as an exception to current judicial and administrative guidelines on leasing transactions set forth in court decisions and the advance ruling revenue procedures on leveraged leases. If a transaction satisfies the requirements of section 168(f)(8), the transaction will not be scrutinized to determine whether the transaction would be, absent the safe-harbor provisions of section 168(f)(8), a lease, a sale, a financing, or some other type of transaction. S. Rep. No. 97-144, 97th Cong., 1st Sess. 62-63 (1981), page 412, this Bulletin.

SEC. 3. APPLICATION

Rev. Procs. 75-21, 75-28, 76-30, and 79-48 are not applicable to voluntary advance ruling requests on leveraged lease transactions if the parties to the agreement have elected and complied with the requirements of section 168(f)(8) of the Code. When the parties to the transaction have elected to have the transaction characterized under section 168(f)(8), only the factors described in section 168(f)(8) and the regulations thereunder are relevant in determining whether the transaction is a lease for federal income tax purposes.

SEC. 4. EFFECT ON OTHER REVENUE PROCEDURES

Rev. Procs. 75-21, 75-28, 76-30, and 79-48 are modified.

SEC. 5. EFFECTIVE DATE

The provisions of this revenue procedure are effective with respect to advance ruling requests on leveraged leases received after January 1, 1981.

SEC. 6. INQUIRIES

Inquiries regarding this revenue procedure should refer to its number and be addressed to the Commissioner of Internal Revenue, 1111 Constitution Avenue, N.W., Washington, D.C. 20224, Attention: T:C:C.