Accounting and Tax Treatment of Sale-Leaseback Transactions

Summary

This practice note discusses the accounting and tax treatments of sale-leaseback transactions and includes an explanation of changes in the accounting treatment that will be implemented beginning in December 2018. This analysis begins with an overview of the operational background of sale-leaseback transactions. This note also discusses the factors applied to determine whether a lease is to be treated as a lease in a sale-leaseback transaction or as a standard purchase and sale, for tax purposes. Note that the Internal Revenue Service has scrutinized sale-leaseback transactions to determine whether such transactions are genuine sale-leasebacks or are standard purchases and sales. As a result, a comprehensive grasp of the issues is important for tax practitioners and their clients.