2500 One Liberty Place
1650 Market Street
Philadelphia, PA 19103-7301
215.851.8100
Fax 215.851.1420
February __, 2006
Commonwealth Income & Growth Fund VI
Oaklands Corporate Center
470 John Young Way, Suite 300
Exton, PA 19341
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 __,
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.
In addition, we have relied on, and have assumed the correctness of the
following representations of the General Partner and its authorized
representatives:
LONDON o NEW YORK o LOS ANGELES o SAN FRANCISCO o WASHINGTON, D.C.
PHILADELPHIA o PITTSBURGH o OAKLAND o PRINCETON
FALLS CHURCH o WILMINGTON o NEWARK o MIDLANDS, U.K.
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
February __, 2006
Page 2
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
Commonwealth Income & Growth Fund V Reed Smith
February __, 2006
Page 3
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.
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
Commonwealth Income & Growth Fund V Reed Smith
February __, 2006
Page 4
subject to several special allocation rules designed in part to prevent
a partner's capital account as specially adjusted from going below zero.
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
February __, 2006
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. We undertake no obligation to update the opinions
expressed herein after the date of this letter.
Very truly yours,
Reed Smith LLP
MBP/PP/RGD//LNH