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A common phenomenon in the federal income tax field is the
"restructured transaction"-a business arrangement that is classified
differently by the Internal Revenue Service and the courts than by
the private parties who entered into it. For example, an owner of
business equipment may agree to lease it for an extended period with
an option to purchase, on terms virtually insuring that the lessee will
exercise the option because the aggregate rent to be paid equals the
value of the property (plus an allowance to reflect the fact that payments
are to be made over a period of years) and the option price is
minimal. If the transaction is treated as the implementing documents
provide and the parties intend, the owner reports gain or loss only if
and when the option is exercised, and can deduct depreciation on the
property in the interim. Conversely, the lessee can deduct the rent as
a business expense as paid or accrued, and can depreciate the property
only on becoming its owner by exercising the option.

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