Promoter structures library
Equipment Leasing for Bonus Depreciation
Sold as: "equipment leasing program", "passive income plus 100 percent write-off", "container investment", "ATM portfolio", "own the equipment, we manage it"
Technical name: Purchase of equipment placed into a leasing activity, claiming Sec. 168(k) bonus depreciation against other income
Four independent walls stand between this deduction and your S corp income, and the promoter's opinion letter usually addresses one of them.
Classification B or C, depending on the variant.
- B, legitimate, commonly abused. Real tax law with a real benefit. Promoters break it.
- C, legitimate but aggressive. Defensible, but fact-intensive and audit-attracting.
The pitch
OBBBA restored 100 percent bonus depreciation for property placed in service after January 19, 2025. Buy 500,000 dollars of equipment with 150,000 dollars cash and 350,000 dollars of seller financing, take a 500,000 dollar deduction against your S corp income.
Four independent walls
- wall
IRC Sec. 469 passive activity
- detail
If the client does not materially participate, the loss is passive and cannot offset S corp or W-2 income. Most equipment leasing is a PER SE RENTAL ACTIVITY under Sec. 469, and even the six-year average lease term and short-term exceptions in Temp. Reg. 1.469-1T(e)(3) still require material participation under Temp. Reg. 1.469-5T(a).
- wall
IRC Sec. 465 at-risk
- detail
Nonrecourse seller or promoter financing is not at-risk. Sec. 465(b)(3) related-party financing and Sec. 465(b)(4) loss-protection arrangements routinely kill these deals.
- wall
IRC Sec. 183 hobby loss / profit motive
- detail
Olsen v. Commissioner (10th Cir. 2023) denied solar-equipment lessors all benefits for lack of profit motive. Tax benefits alone do not establish one.
- wall
IRC Sec. 7701(o) economic substance
- detail
Plus the lease-strip, SILO, and LILO listed transactions for the leveraged variants.
Aircraft specifically
- campaign
IR-2024-46 (Feb. 21, 2024) announced significantly increased scrutiny of business aircraft use by corporations, partnerships, and high-income taxpayers.
- issues
- Sec. 132 / SIFL imputation for personal use
- Sec. 274 disallowance of entertainment and commuting flights post-TCJA, with allocation across all flights
- Sec. 280F predominant-use test: the aircraft must be MORE THAN 50 PERCENT qualified business use to sustain 100 percent bonus depreciation, with RECAPTURE if it fails in a later year
- common errors
- Mischaracterizing personal trips
- Not substantiating each passenger's business purpose
- Using SIFL where charter-rate valuation is required
Shipping containers and ATMs
Frequently SECURITIES FRAUD rather than tax shelters. DOJ has prosecuted container sellers for securities schemes. There is no IRS designation targeting container or ATM leasing as such. the tax deduction fails under Sec. 469, 465, and 183, and the underlying investment may simply be a fraud.
What it costs you if it is wrong
Often the loss is not lost but suspended: without material participation Sec. 469 parks it until you have passive income or dispose of the activity, and Sec. 465 does the same for anything financed on a nonrecourse note. Sec. 183 and Sec. 7701(o) are the ones that take it away for good. On aircraft, failing the Sec. 280F more-than-50-percent business use test in a later year recaptures bonus depreciation already taken.
Red flags specific to this structure
- The financing is nonrecourse or comes from the seller
- The return only works after the tax benefit
- Someone else manages the equipment for you
- You have not seen the equipment and cannot inspect it
- The opinion letter addresses economic substance but not Sec. 469, 465, or 183
Questions to ask the person selling this
Take these into the next meeting. Someone selling the legitimate version answers them without difficulty.
- 1Is the debt recourse, and who is the lender?
- 2Does the return work before any tax benefit? Show me the pre-tax model.
- 3Can I go and physically inspect the equipment?
- 4Who materially participates, and what would my hours have to look like?
- 5Does the opinion letter address Sec. 469, Sec. 465, and Sec. 183, or only economic substance?
Which of the Seven Markers this trips
Fees consume most of the capital
The economics do not work without the tax benefit
The legitimate version
A business buys equipment it actually uses, or genuinely leases out as a real trade or business with material participation, with recourse debt or cash and a documented profit motive independent of tax benefits.
What distinguishes it
- The equipment exists and can be physically inspected
- The debt is recourse
- The return model works PRE-TAX
- The client can pass a material participation test on real records
Reporting status
Not designated as such, though the leveraged lease-strip variants are covered by older listed transactions.
Holding one of these, or being pitched one?
The diagnostic work is worth doing before the return gets filed rather than after. That is a conversation, not an engagement.
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