Pay telephone investor denied depredation deduction and disabled access credit.

• Author: Crooks, Daniel A.

Yes contend that they purchased four pay telephones for which they are entitled to a Sec. 44 disabled access credit and depreciation under Sec. 167.

Depreciation

Ys claim they are entitled to depreciation as owners of the telephones, because they purchased the phones. To determine whether a sale has been completed, the entire transaction has to be examined; see &gall, 114 F2d 706 (6th Cir. 1940).The transfer of title and pos session are both important aspects of completing a sale. Also, as stated in Upham, 923 F2d 1328 (8th Cir. 1991), the following are important factors:

1. How the parties treat the transaction;

2. Whether the purchaser acquired any equity in the property;

3. Whether the purchaser has any control over the property and, if so, the extent of such control;

4. Whether the purchaser bears the risk of loss or damage to the property; and

5. Whether the purchaser will receive any benefit from the operation or disposition of the property.

Ys entered into purchase and service agreements with A, Inc. A, not Ys, entered into agreements with those who owned or leased the properties where the phones were going to be located; conducted all maintenance on the phones; collected the money from the phones; kept the majority of profits above $58.34 collected from the phones each month; and managed the phones. Thus, A had primary control over the phones.

When reviewing the agreements together, it is apparent that the benefits and burdens of ownership of the phones did not pass from A to Ys. Although it appears that legal title passed to them, the parties did not treat Ys as the true owners. They did not acquire any equity in the property, because when A declared bankruptcy, the phones were not returned by the bankruptcy trustee to Ys as property in which they had an equitable interest.

A bore the risk of loss or damage to the property, because (1) Ys could sell the phones back to A at any time for the purchase price minus a 10% restocking fee and (2) Ys were guaranteed to make $58.34 per month on the phones, even if they brought in less. Finally, because A was entitled to the majority of profits above $58.34, Ys did not receive any significant benefit from operating the phones. Thus, Ys were not entitled to the depreciation deduction, because they did not own the phones.

Disabled Access Credit

Sec. 44 provides that an eligible small business is entitled to a credit for expenditures to enable it to comply with the Americans With Disabilities Act...