Tax Legal Services · Primary-source case analysis

Frank Lyon: A Genuine Sale-Leaseback With Business Substance Was Respected for Tax Purposes

By Aneeta Mishra and Timothy Chan

Published May 19, 2026

Frank Lyon Co. v. United States considered ownership, depreciation, and interest deductions arising from a bank headquarters sale-and-leaseback shaped by banking regulations and third-party financing.

The arrangement was not a simple conduit

The lessor incurred its own loan obligations, invested capital, held title, and assumed rights and risks that could not be reduced to transmitting the bank’s payments.

Business and regulatory reasons supported the structure

The bank’s financing constraints and the parties’ non-tax objectives supplied a genuine commercial setting for the multi-party transaction.

Traditional lessor attributes remained significant

The titleholder’s investment and contractual position supported treating it as the tax owner entitled to depreciation and related deductions.

Substance and form pointed in the same direction

Because the transaction had real economic substance and was not shaped solely by tax avoidance, the Court respected the allocation the parties actually implemented.

Key takeaways

• Document the non-tax reason for the structure when the deal is formed.
• Trace capital investment, debt obligations, residual rights, and risk of loss.
• Test whether the titleholder acts as an owner rather than a payment conduit.
• Confirm that the parties perform the agreements consistently over time.