Tax avoidance
(2) Tax avoidance(i) In general. If, as of the agreement date, a significant difference between the marginal tax rates of the lessor and lessee can reasonably be expected at some time during the lease term, the agreement will be closely scrutinized and clear and convincing evidence will be required to establish that tax avoidance is not a principal purpose for providing increasing or decreasing rent. The term marginal tax rate means the percentage determined by dividing one dollar into the amount of the increase or decrease in the Federal income tax liability of the taxpayer that would result from an additional dollar of rental income or deduction. (ii) Significant difference in tax rates. A significant difference between the marginal tax rates of the lessor and lessee is reasonably expected if (A) The rental agreement has increasing rents and the lessor's marginal tax rate is reasonably expected to exceed the lessee's marginal tax rate by more than 10 percentage points during any rental period to which the rental agreement allocates annualized fixed rent that is less than the average rent allocated to all calendar years (determined by taking into account the rules set forth in paragraph (c)(4)(iii) of this section); or (B) The rental agreement has decreasing rents and the lessee's marginal tax rate is reasonably expected to exceed the lessor's marginal tax rate by more than 10 percentage points during any rental period to which the rental agreement allocates annualized fixed rent that is greater than the average rent allocated to all calendar years (determined by taking into account the rules set forth in paragraph (c)(4)(iii) of this section). (iii) Special circumstances. In determining the expected marginal tax rates of the lessor and lessee, net operating loss and credit carryovers and any other attributes or special circumstances reasonably expected to affect the Federal income tax liability of the taxpayer (including the alternative minimum tax) are taken into account. For example, in the case of a partnership or S corporation, the amount of rental income or deduction that would be allocable to the partners or shareholders, respectively, is taken into account. (3) Safe harbors. Tax avoidance will not be considered a principal purpose for providing increasing or decreasing rent if (i) The uneven rent test (as defined in paragraph (c)(4) of this section) is met; or (ii) The increase or decrease in rent is wholly attributable to one or more of the following provisions (A) A contingent rent provision set forth in 1.467-1(c)(2)(iii)(B); or (B) A single rent holiday provision allowing reduced rent (or no rent) for one consecutive period during the lease term, but only if