The so called dollar option lease is not really a lease in the eyes of the IRS. It is a time payment contract which at the end user retains ownership at the end of the contract term (provided they made all payments) & the equipment must be treated as a capital asset on the customers books. The FMV is a true lease & monthly payments can be treated as an operating expense - owner ship belongs to the leasing organization at the end of the term. With a FMV the end user is simply paying for usage of the equipment. They could possibly sell the equipment to the original lease customer at a "Fair Market Value" at the end of the term. The leasing company determines the market value at that the lease end.