Comparing Accounting and Taxation for Leases

Robert Bloom, PhD, and William J. Cenker, PhD (deceased)

Accountants may be conversant with accounting requirements for leases, while tax specialists are familiar with the tax requirements for leases. This article attempts to reconcile the two sets of requirements. In accounting, the several criteria can be somewhat different for the lessee versus the lessor. In taxation, however, the same criteria—more numerous than in accounting—can be used by each party to justify the treatment it seeks. As a result, leases can be classified differently for accounting and tax purposes, giving rise to deferred tax accounts on the balance sheet.