Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 61-100

1961-1 C.B. 488

Full Text

Rev. Rul. 61-100

A manufacturer of taxable business machines leases those machines under lease agreements which provide for monthly payments by the lessees. With respect to a particular machine, a lessee may, by paying an additional `option deposit' with the first monthly lease payment, obtain an option to purchase the machine at any time within a prescribed period. If a lessee exercises this option to purchase the machine, the manufacturer will credit toward the sale price of the machine a portion of the monthly lease payments which have been made with respect to that machine and will refund the option deposit to the lessee-purchaser. However, if the option to purchase is not exercised, the option deposit will be forfeited. Held , under the provisions of sections 4216(c)(1) and 4217 of the Internal Revenue Code of 1954, the payment of the option deposit in connection with the lease of the taxable articles constitutes a lease payment which is subject to the manufacturers excise tax imposed by section 4191 of the Code. However, if the deposit is refunded to a lessee who exercises his option to purchase an article, the manufacturer will be entitled, under the provisions of section 6416(b)(1) of the Code, to a credit or refund of the tax paid with respect to the amount refunded.