Reed Smith
2500 One Liberty Place
1650 Market Street
Philadelphia, PA 19103-7301
215.851.8100
Fax 215.851.1420
January 25, 2007
Commonwealth Income & Growth Fund VI
2 Christy Drive, Suite 200
Chadds Ford, PA 19317
Ladies and Gentlemen:
We have acted as counsel to Commonwealth Income & Growth Fund VI, a
Pennsylvania limited partnership (the "Partnership"), in connection with the
proposed offering of up to 2,500,000 Units of limited partnership interest in
the Partnership (the "Units") and with respect to the preparation of the
Partnership's Registration Statement on Form S-1 (the "Registration Statement")
as filed with the Securities and Exchange Commission on February 10, 2006, and
the related prospectus (the "Prospectus"). As counsel, we have been asked to
express our opinion concerning certain federal income tax matters relating to
the Partnership.
In connection with the opinions rendered below, we have examined: (a)
the Partnership's Restated Limited Partnership Agreement (the "Partnership
Agreement") and Certificate of Limited Partnership; (b) the Articles of
Incorporation and By-Laws of Commonwealth Income & Growth Fund, Inc., the
General Partner of the Partnership (the "General Partner"); (c) the Registration
Statement and the Prospectus; and (d) certain other documents that we deemed
necessary to examine in order to issue the opinions set forth below. Unless
otherwise defined herein, all capitalized terms will have the same meaning as in
the Prospectus.
In rendering our opinions, we have assumed that: (a) each of the
documents referred to above has been duly authorized, executed, and delivered,
is authentic, if an original, or accurate, if a copy, and has not been amended
subsequent to our review; (b) each of the parties to the Partnership has or will
duly execute, and will comply with the terms and conditions of, the Partnership
Agreement; (c) no amendments will be made to the Partnership Agreement or other
organizational documents of the Partnership or the General Partner that would
affect the Partnership's status as a partnership for federal income tax
purposes; and (d) no actions will be taken by the General Partner or the
Partnership that would have the effect of altering the facts upon which the
opinions set forth below are based.
LONDON o NEW YORK o LOS ANGELES o SAN FRANCISCO o WASHINGTON, D.C. o PHILADELPHIA o PITTSBURGH o OAKLAND o PRINCETON
FALLS CHURCH o WILMINGTON o NEWARK o MIDLANDS, U.K. o CENTURY CITY o RICHMOND o HARRISBURG o LEESBURG o WESTLAKE VILLAGE
r e e d s m i t h . c o m
Commonwealth Income & Growth Fund V Reed Smith
January 25, 2007
Page 2
In addition, we have relied on, and have assumed the correctness of the
following representations of the General Partner and its authorized
representatives:
1. The Partnership will be operated in accordance with
the provisions of the Pennsylvania Revised Uniform Limited Partnership
Act and with the Partnership Agreement.
2. The Partnership Agreement will remain in
substantially its current form, and will not be further amended in any
material respect.
3. The activities and operations of the Partnership will
be conducted in the manner described in the Prospectus.
4. The General Partner is not, and will not act as, an
agent of the Limited Partners in connection with the investments by the
Limited Partners in, or the operation of, the Partnership.
5. The General Partner's net worth, determined on a fair
market value basis and excluding the General Partner's interest in the
Partnership itself, will equal or exceed $1,000,000 throughout the term
of the Partnership.
6. The General Partner will prohibit any transfer of
Units which, in the General Partner's good faith judgment, will result
in more than 2% of capital or profits in the Partnership being sold or
otherwise disposed of in any one taxable year in a manner which would
violate the 2% "safe harbor" set forth in Treasury Regulation Section
1.7704-1(j).
7. The General Partner will file any tax or other
informational returns (including, without limitation, Department of the
Treasury/Internal Revenue Service Form 8832), if any, which may be
required in order for the Partnership to be treated as a partnership
for federal income tax purposes.
We express no opinions except as set forth below and our opinions are
based upon the facts as set forth in the Registration Statement and Prospectus.
Accordingly, we express no opinion as to tax matters that may arise if, for
example, the facts are not as set forth in the Registration Statement and
Prospectus, if the Partnership Agreement is not executed and followed according
to its terms or if the representations made by the General Partner are not
correct. However, after reasonable inquiry, we are not aware of any facts
inconsistent with the representations set forth above.
In addition to being based on certain representations by the General
Partner set forth above, our opinions also are based on the current provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), applicable
Treasury Regulations promulgated thereunder, and rulings, procedures, and other
pronouncements published by the IRS. Such laws, regulations, rulings, case law
and pronouncements are subject to change at any time, and such change may
adversely affect the continuing validity of the opinions set forth below.
Subject to the limitations and qualifications described herein, and in
support of the discussion in the Prospectus under the caption "United States
Federal Income Tax Considerations," we are of the opinion that:
1. The Partnership will be classified as a partnership
for federal income tax purposes and not as an association taxable as a
corporation. As a result, the Partnership will not be subject to
federal income taxation but will be required to file a partnership
information tax return each year. Each Partner will be required to take
into account, in computing such Partner's federal income tax liability,
his or her distributive share of all items of income, gain, loss,
deduction or credit (including items of tax preference) of the
Partnership, and will be subject to tax on such income or gain even if
the Partnership does not make any cash distributions. A distribution of
cash by the Partnership to the Partner will generally not cause
recognition of taxable income for federal income tax purposes except to
the extent the amount of the distribution exceeds the Partner's
adjusted basis in his Partnership units.
Commonwealth Income & Growth Fund V Reed Smith
January 25, 2007
Page 3
2. The income, gain, losses, deductions and credits
derived from the Partnership's leasing activities (and each Partner's
share thereof) will be subject to the passive activity rules set forth
in Section 469 of the Code and the Treasury Regulations issued
thereunder. Our opinion does not apply to any Partnership income
attributable to: (i) the investment of Partnership funds in liquid or
temporary investments prior to the purchase of computer peripheral
equipment ("Equipment"), (ii) the investment, in interest-bearing
accounts or otherwise, of amounts held by the Partnership as working
capital, security deposits, or in reserve, or (iii) Equipment with
respect to which the Partnership is determined not to be the owner for
federal income tax purposes. The Code prohibits an individual, estate,
trust, closely-held "C" corporation, or personal service corporation
from using losses which are subject to the passive activity rules of
Section 469 of the Code to offset other income, including salary and
(except in the case of certain closely held "C" corporations) active
business income as well as portfolio income (such as dividends,
interest and royalties, whether derived from property held directly or
through a pass-through entity such as a partnership). Thus, any such
losses of the Partnership will not be able to be offset against
interest income derived by the Partnership from the interim investment
of offering proceeds, working capital, security deposits, or reserves
or against any income derived by the Partnership from leases which are
treated as loans for federal income tax purposes, or against salary or
other portfolio income of a Partner. Losses from a passive activity
that are not allowed currently will be carried forward indefinitely,
and are allowed in subsequent years against passive activity income
(not including certain self-charged passive activity income or passive
income from publicly-traded partnerships) or in full upon complete
disposition of the taxpayer's interest in the Partnership to an
unrelated party in a fully taxable transaction.
3. The allocations of Net Profits and Net Losses in the
Partnership Agreement will be respected for federal income tax
purposes. As a result, generally speaking, the General Partner will be
allocated for tax purposes net profits equal to its cash distributions
(but not less than one percent of net profits), and the balance will be
allocated to the limited partners. Net profits arising from
transactions in connection with the termination or liquidation of the
Partnership will be allocated (i) first, to each partner in an amount
equal to the negative amount, if any, of his capital account; (ii)
second, an amount equal to the excess of the proceeds which would be
distributed to the partners based on the operating distributions over
the aggregate capital accounts of all the partners adjusted as if such
operating distributions which could be made have been made, to the
partners in proportion to their respective shares of such excess; and
(iii) third, with respect to any remaining profits, to the parties in
the same proportions as operating distributions would be made. Net
losses, if any, will be allocated ninety-nine percent to the limited
partners and one percent to the general partner. These allocations,
however, are subject to several special allocation rules designed in
part to prevent a partner's capital account as specially adjusted from
going below zero.
Commonwealth Income & Growth Fund V Reed Smith
January 25, 2007
Page 4
4. The sum of the amounts for which a Limited Partner
will be considered "at-risk," for purposes of Section 465 of the Code,
in any taxable year with respect to Equipment placed in service in that
taxable year and in each prior year (treating all Equipment placed in
service in the same year as a single activity separate from the
activities represented by Equipment placed in service in other years)
will be equal to (i) the Capital Contributions (as such term is defined
in the Partnership Agreement) of such Limited Partner (provided that
funds for such Capital Contributions are not from borrowed amounts
other than amounts: (A) for which the Limited Partner is personally
liable for repayment, or (B) for which property other than Units is
pledged as security for such borrowed amounts, but only to the extent
of the fair market value of such pledged property and provided further
that such Capital Contributions are invested in the Equipment or
otherwise expended in connection with the Partnership's organization or
leasing activities (or are subject to the rights of the Partnership's
creditors for amounts incurred by it with respect to same) ), less:
(ii) the sum determined on a cumulative basis of (A) the total net
losses with respect to such Equipment which have been allowed as
deductions to the Limited Partner under the at-risk rules and (B) cash
distributions received by the Limited Partner, plus (iii) the Limited
Partner's distributive share, determined on a cumulative basis, of
total net profits with respect to such Equipment of the Partnership. An
individual or a closely held "C" corporation may not claim a deduction
from an activity in excess of the amount with respect to which such
taxpayer is "at risk" for such activity as of the close of the taxable
year. For these purposes, however, equipment placed in service by the
Partnership during separate years will be treated as separate
activities.
It should be noted, moreover, that the opinions expressed herein are
subject to the application of certain Treasury Regulations relating to the
improper utilization of income tax rules by partnerships (the "Anti-Abuse
Rules"). These Regulations purportedly grant authority to the IRS to
recharacterize certain transactions to the extent that it is determined that the
utilization of a partnership is inconsistent with the intent of the federal
income tax rules relating to partnerships. Under these Anti-Abuse Rules, the IRS
may, under certain circumstances, (i) recast transactions which attempt to use
the partnership form of ownership, or (ii) otherwise treat the partnership as an
aggregation of its partners rather than a distinct separate entity, as
appropriate in order to carry out the purposes of the partnership tax rules. The
Anti-Abuse Rules also provide that the authority to recharacterize transactions
is limited to circumstances under which the tax characterization by the taxpayer
is not, based on all facts and circumstances, clearly contemplated under the
Code or the applicable Treasury Regulations.
These Anti-Abuse Rules are intended to impact only a small number of
transactions which improperly utilize income tax rules relating to partnerships.
Therefore, it is our opinion that the Partnership and/or the transactions
contemplated in the Prospectus should not be affected by the administration of
these Anti-Abuse Rules. However, no assurance can be given that IRS will not
attempt to utilize the Anti-Abuse Rules to alter, in whole or part, the tax
consequences described herein with regard to an investment in the Partnership.
Commonwealth Income & Growth Fund V Reed Smith
January 25, 2007
Page 5
We hereby consent to the filing of this opinion letter as an exhibit to
the Registration Statement. We also consent to the use of our name in the
Prospectus under the captions "United States Federal Income Tax Considerations"
and "Legal Matters." In giving this consent, we do not admit that we are in the
category of persons whose consent is required by Section 7 of the Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder.
The foregoing opinions are limited to the federal income tax matters
addressed herein, and no other opinions are rendered with respect to other
federal tax matters or to any issues arising under the tax laws of any state,
locality, or foreign country.
Very truly yours,
/s/ Reed Smith LLP
----------------------------------------
Reed Smith LLP
MBP/PP/KAC//LNH