Auto lease to related party

Wholly owned LLC purchased SUV. The LLC plans to lease the SUV to S Corp which he is 100% shareholder. It seems an operating lease rather than a capital lease arrangement would be most beneficial from a tax standpoint as section 179 would not be available to the S corp under the capital lease arrangement. Any thoughts?

Are you suggesting that a Section 179 election would be available to the noncorporate-LLC-purchaser-owner-lessor of this vehicle?

Not suggesting anything at this point. Trying to decide how best to advise the client in structuring the lease....

What's the convolutions about anyway? What's he hoping to accomplish?

The LLC was established as legal entity to separate ownership of assets used for his S corp business. Is this not a typical set-up for liability purposes? Of course he'd like the S corp to reimburse the LLC somehow for the expenses. What I'm trying to determine is how to best structure. Any thoughts?

It hasn't been for over 30 years. He's just creating nuisance and aggravations for no apparent purpose. But I'm no attorney.

Are we to assume that the single member LLC is owned by an individual and he will be reporting the lease income on his 1040 on schedule C?

...and he will be reporting the lease income on his 1040 on schedule C?

No; maybe it'll go on his Schedule E... Is it subject to SE tax? Another question for another day...!!

Trust me there are reasons he needed to keep the assets separate. Regardless of the complications inherent, this is what I'm left to deal with and just want to handle the best way possible.

Regarding reporting of income, yes the wholly owned LLC reports all income on the schedule C of the owner's 1040. All income is passive and losses can only be offset when there is income.

And yes, subject to SE tax.

Any thoughts on this anyone??

Assuming he is an employee of the S-Corp just have the S-Corp reimburse him for actual auto expenses, including depreciation, via an accountable plan. On the personal return there is neither a profit or loss just a breakeven reimbursement.

Thank you taxguy. Unfortunately, he is not an employee. He is also has a C corp. which he is 100% shareholder. He takes a salary from the C corp which receives management fees from the S. Don't want to confuse since the issue is really the SUV.

I did turn up this case -

90 T.C.M. 15 (2005)

T.C. Memo. 2005-166

Fred Misko, Jr. and Karen L. Howe-Misko, v. Commissioner.

United States Tax Court.

July 6, 2005.

Could you up the management fee from the S-Corp to C-corp to cover auto expenses. Have the guy get reimbursed for his auto expenses under an accountable plan with the C-Corp. Self rental of personal property is a tax disadvantaged way to go.

The C corp is a ROBS. Does that prohibit the reimbursement as an employee.

Who is driving the vehicle?

The owner of both businesses.

Sounds like the C Corp should be the one leasing the vehicle for the owner, not the S Corp, since he is an employee of the C Corp.

Concern is the C corp is a ROB's and might be considered a prohibited transaction.