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REGULATIONS
Personal Property like-kind exchanges: impact of the new NAICS product classes.
In recent final, Temporary, and Proposed Regulations (TD 9151 and REG-116265-04, 8/12/04), the IRS and Treasury took a big step forward by abandoning the use of product classes based on the Standard Industrial Classification (SIC) system for Section 1031 safe harbor like-class determinations of tangible depreciable personal property. The SIC codes are replaced with product classes based on the North American Industry Classification System (NAICS). The SIC system was no longer being updated, and although the IRS had already used NAICS in private rulings, a regulatory amendment was needed to formally adopt NAICS.
Treas. Reg. §1.168(i)-1T
IRC Sec(s). 168, Issued 2/27/2004
Accelerated cost recovery system - treatment of property received in like-kind exchange or involuntary conversion.
CASES
Andrew L. Paradiso v. Commissioner
Sole proprietor/non-filer wasn't entitled to Code Sec. 1031(a) like-kind exchange treatment for mutual fund share sales: statute by its plain terms didn't apply to securities sales. (Andrew L. Paradiso v. Commissioner, (2005) TC Memo 2005-187)
Teruya Brothers, Ltd. & Subsidiaries v. Commissioner
124 T.C. No. 4, Code Sec(s) 1031.
Donald DeCleene, et ux. v. Commissioner
115 T.C. No. 34, Issued 11/17/2000
Non-recognition of gain – sale vs. reverse like-kind exchange without third- party intermediary – unimproved property
J. Clark Bundren, et ux. v. Commissioner
T.C. Memo 2001-2, Issued 01/05/2001
Like-kind exchanges of property – adjusted basis – depreciation; losses – proof.
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REVENUE PROCEDURES
Rev. Proc. 2005-27, 2005-20 IRB 1050, 05/12/2005, IRC Sec(s). 7508
IRS provided updated list of time-sensitive acts which permit postponement of specified acts for taxpayers affected by Presidentially declared disaster areas.
Rev. Proc. 2005-14, 2005-7 IRB, 01/27/2005 , IRC Sec(s). 121
Exclusion of gain from sale of principal residence-single exchange of like-kind property.
Rev. Proc. 2004-51
Reverse Exchange: Disqualification of Replacement property owned by Taxpayer at the time exchange is initiated.
Rev Proc 2004-51, 2004-33 IRB
Under a new revenue procedure, a safe harbor for reverse like-kind exchanges set up through "parking" arrangements does not apply if the taxpayer owns the property intended to qualify as replacement property before initiating a qualified exchange accommodation arrangement (QEAA).
Rev. Proc. 2003-39 Released 5/7/03 (Adobe PDF format)
This revenue procedure provides safe harbors with respect to programs involving ongoing exchanges of tangible personal property using a single intermediary, as described in section 3.02 of this revenue procedure (an “LKE Program”).
Rev. Proc. 2002-69 Released 10/09/02 (Adobe PDF format)
Taxpayers' treatment of business entity owned solely by married couple as community property under applicable local law, where no other person would be considered owner for tax purposes and where entity isn't treated as corp., as either disregarded entity or as partnership, will be respected for federal tax purposes. IRS became aware of need for guidance due to taxpayers' uncertainty, so will respect their treatment of these arrangements.
Rev. Proc. 2002-22 Released 3/19/02
This revenue procedure specifies the conditions under which the Internal Revenue Service will consider a request for a ruling that an undivided fractional interest in rental real property (other than a mineral property as defined in section 614) is not an interest in a business entity, within the meaning of § 301.7701-2(a) of the Procedure and Administration Regulations.
Rev. Proc. 2000-46 Released 10/12/00
IRS has revised its annual list of "no rule" areas under jurisdiction of Associate Chief (Domestic) to include question of whether undivided fractional interest in real property is an interest in a separate tax entity ineligible for tax-free exchange under Code Sec. 1031(a)(1) .
Rev. Proc. 2000-37 Released 9/18/00
IRS won't challenge qualification of property as either "replacement property" or "relinquished property" for purposes of applying non-recognition rules of Code Sec. 1031 , or treatment of accommodation party as property owner, if property is held in qualified exchange accommodation arrangement (QEAA).
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REVENUE RULINGS
Rev. Rul. 2004-86
Classification of Delaware statutory trust.
Rev. Rul. 2004-86, 2004-33 IRB 191, 07/20/2004 , IRC Sec(s). 7701
Entity classification-trust created under Delaware law to hold real property for investment-like-kind exchange treatment of real property for trust interest exchanges.
Rev. Rul. 2003-56 Released 5/9/03 (Adobe PDF format)
Partnership which enters into exchange that qualifies as deferred like-kind exchange under Code Sec. 1031; in which property subject to liability is transferred in one tax year of partnership and property subject to liability is received in following tax year of partnership, must net liabilities for purposes of determining any increase or decrease in partners' share of partnership liabilities under Code Sec. 752;
Rev. Rul. 2002-83 Released 11/25/02 (Adobe PDF format)
Taxpayer who transfers relinquished property to qualified intermediary in exchange for replacement property formerly owned by related party isn't entitled to non-recognition treatment under Code Sec. 1031(a); if as part of transaction, related party receives cash or non-like-kind property for replacement property. Transaction allowed taxpayer who owned low-basis property to cash out of investment without recognizing gain, thus treated as transaction designed to avoid application of Code Sec. 1031(f); , so non-recognition won't apply to exchange between taxpayer and qualified intermediary, and exchange is taxable transaction.
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PRIVATE LETTER RULINGS
Private Letter Ruling 20074401F, 11/02/2007 , IRC Sec(s). 1031
Exchanged newspapers' mastheads and advertiser and subscriber accounts were not like-kind property under Section 1031, because they were so closely related to the newspapers' goodwill and going-concern value.
( PLR 20074401F )
Private Letter Ruling 200631012, 08/04/2006 , IRC Sec(s). 1031
Partnership is a partnership for federal income tax purposes. Company is an S
corporation for federal income tax purposes. Both entities use the cash method of
accounting and file their federal income tax returns on the calendar year.
( PLR 200631012 )
Private Letter Ruling 200625009, 06/23/2006 , IRC Sec(s). 1031
Business entities—undivided fractional interest in property—eligible replacement property. ( PLR 200625009 )
Private Letter Ruling 20200616005, 4/21/2006 , IRC Sec(s). 1031
Exchange of Property Held for Productive Use or Investment.
( PLR 20200616005 )
Private Letter Ruling 200541037, 10/14/2005 , IRC Sec(s). 1031
Exchange of taxpayer's 100% interest in old-growth timberlands, held for investment, for timber corp.'s reproduction timberland, also held for investment, will be like-kind exchange under Code Sec. 1031 . ( PLR 200541037 )
Private Letter Ruling 200532008, 08/12/2005 , IRC Sec(s). 1031
Taxpayer's exchange of FCC licenses for spectrum rights in the stated 2 bandwidths for FCC licenses for spectrum right in 2 other bandwidths qualifies as like kind exchange under Code Sec. 1031 . ( PLR 200532008 )
Private Letter Ruling 200521002, 05/27/2005 , IRC Sec(s). 1031
Testamentary trust's termination that by its terms is to occur 20 years after death of decedent's last surviving child, and subsequent distribution of assets to beneficiaries, didn't prevent replacement property that it received in exchange at issue from being treated as held for productive use in trade, business or investment, for purposes of qualifying for Code Sec. 1031 like-kind exchange treatment where exchange was considered independent of trust's impending termination. ( PLR 200521002 )
Private Letter Ruling 200513010, 04/01/2005 , IRC Sec(s). 1031
Undivided fractional interest in rental real property won't constitute interest in business entity under Reg. § 301.7701-2(a) for purposes of qualification of undivided fractional interest as eligible replacement property under Code Sec. 1031(a) . ( PLR 200513010 )
Private Letter Ruling 200440002, 10/01/2004, IRC Sec(s). 1031
IRS ruled that Code Sec. 1031(f); special rules for exchanges between related persons won't apply to trigger recognition of any gain realized in AB partnership's building-for-building exchange or CD partnership's exchange of building for CD's replacement property where both exchanges were structured as like-kind exchanges, there was no cashing out of either party's investment in real estate, and after transactions were completed, both related parties owned property that was like-kind to property they exchanged.
Private Letter Ruling 200338001 Released 09/19/03 (Adobe PDF format)
Intermediary C corp. isn't disqualified person as defined in Reg. §1.1031(k)-1(k) with respect to taxpayers' like-kind exchange of property under Code Sec. 1031;
Private Letter Ruling 200329021 Released 07/18/03 (Adobe PDF format)
Provided planned improvements are completed within exchange period, sub. won't recognize any gain or loss upon conveyance of its stated property to 3rd party and receipt of stated property in return.
Private Letter Ruling 200327039 Released 07/03/03 (Adobe PDF format)
Exchanges of one or more relinquished property for replacement property in accordance with Master Exchange Agreement entered into by taxpayer with accommodator will qualify for non-recognition of gain or loss provided no money or other like-kind property is received by taxpayer.
Private Letter Ruling 200327003 Released 07/03/03 (Adobe PDF format)
Undivided fractional interest in property won't constitute interest in business entity under Reg. §301.7701-2(a) for purposes of qualification of undivided fractional interest as eligible replacement property under Code Sec. 1031(a)
Private Letter Ruling 200251008 Released 12/19/02 (Adobe PDF format)
No gain or loss will be recognized by taxpayer upon conveyance of relinquished property to village and receipt of replacement property, unless planned improvements aren't completed within exchange period.
Private Letter Ruling 200242009 Released 10/18/02 (Adobe PDF format)
Taxpayer's transfer of relinquished vehicle, in exchange for receipt of replacement vehicle, in accordance with exchange agreement, will constitute like-kind exchange within meaning of Code Sec. 1031.
Private Letter Ruling 200241016 Released 10/11/02 (Adobe PDF format)
Taxpayer's transfer of relinquished property, in exchange for its receipt of relinquished property, in accordance with exchange agreement, will constitute like-kind exchange within meaning of Code Sec. 1031; . Also, as long as entity acts in accord with exchange agreement, escrow agreement, and Code Sec. 1031; it will be treated as acquiring and transferring relinquished property.
Private Letter Ruling 200241013 Released 10/11/02 (Adobe PDF format)
Transfers of 2 vehicles for acquisition of 2 new vehicles as part of lease program are deferred exchanges, each qualifying for non-recognition of gain or loss under Code Sec. 1031.
Private Letter Ruling 200240049 Released 10/4/02 (Adobe PDF format)
This letter responds to your request for a private letter ruling submitted on behalf of Taxpayer, requesting a ruling that the transfers of vehicles described below are deferred exchanges qualifying for non-recognition of gain or loss under section 1031 of the Internal Revenue Code.
Private Letter Ruling 200236026 Released 9/6/02 (Adobe PDF format)
A, a wholly owned subsidiary of B, is engaged in the business of m. A, a calendar year taxpayer, files a consolidated income tax return as part of an affiliated group of corporations. All of the corporations in the affiliated group use the accrual method of accounting.
A's business requires it to periodically dispose of certain properties and/or equipment, some of which is co-owned by other parties, and reinvest in like-kind property. A seeks to characterize the transactions as non-taxable exchanges under § 1031.
Private Letter Ruling 200211016 Released 3/15/02 (Adobe PDF format)
You request a ruling concluding that the 180-day period is suspended for the duration of the receivership based on the fact that the situation is analogous to the events that trigger the suspension provided under section 6503(b) of the Code.
Private Letter Ruling 200203042 Released 1/18/02 (Adobe PDF format)
This responds to the letter written in your behalf, dated January 26, 2001, requesting a ruling on the proper treatment of an exchange, under § 1031 of the Internal Revenue Code, of a Perpetual Conservation Easement (PCE) in real property for a fee interest in other real estate that will also be burdened with a PCE upon receipt.
Private Letter Ruling 200203033 Released 1/18/02 (Adobe PDF format)
This responds to the letter written in your behalf, dated January 26, 2001, requesting a ruling on the proper treatment of an exchange, under § 1031 of the Internal Revenue Code, of a Perpetual Conservation Easement (PCE) in real property for a fee interest in other real estate that will also be burdened with a PCE upon receipt.
Private Letter Ruling 200201007 Released 1/4/02 (Adobe PDF format)
This responds to your letter dated January 26, 2001, requesting a ruling on the proper treatment of an exchange, under § 1031 of the Internal Revenue Code, of a Perpetual Conservation Easement (PCE) in real property for a fee interest in other real estate that will also be burdened with PCE upon receipt.
Private Letter Ruling 200151017 Released 12/21/01 (Adobe PDF format)
Merger of 2 1st tier subs. didn't disqualify exchange of their assets for like-kind property from entities unrelated to parent corp. from non-recognition treatment under Code Sec. 1031
Private Letter Ruling 200148042 Released 11/30/01 (Adobe PDF format)
Taxpayer requests that we rule that the addition of the language regarding agency for non federal income tax purposes will have no adverse affect on qualification of the QEA Agreement, between Taxpayer (including LLC) and Customer, as a qualified exchange accommodation agreement, as defined in Section 4.02 of the revenue procedure.
Private Letter Ruling 200137032 Released 9/14/01 (Adobe PDF format)
The Service has ruled that the conversion of stock ownership in a cooperative for a condominium interest in the same unit qualifies as a like-kind exchange under section 1031.
Private Letter Ruling 200131014 Released 8/3/01 (Adobe PDF format)
Taxpayer requests rulings that the transfer of replacement property received in a like-kind exchange to a single-member limited liability company (LLC) will not violate the requirement under section (a)(1) of the Code that Taxpayer's replacement property must be held for productive use in a trade or business or for investment after the exchange.
Private Letter Ruling 200118023 Released 5/4/01 (Adobe PDF format)
Taxpayer requests a ruling that acquisition of an exchange accommodator (QI), which, as an LLC, is a disregarded business entity for federal tax purposes, will be treated as the acquisition of qualifying like-kind replacement property.
Private Letter Ruling 200111025 Released 3/16/01
Real estate business's reverse multi-party exchange of parkland/rental-investment property for rental real property qualified for Code Sec. 1031 non-recognition treatment, despite inapplicability of Reg. §1.1031(k)-1 or Rev. Proc. 2000-37......
Private Letter Ruling 200109022 Released 3/2/01
The Service has ruled that a company's exchange program for equipment through a qualified intermediary qualifies for like-kind treatment under section 1031.
Private Letter Ruling 200040017 Released 10/6/00
The Service has ruled that property located in the U.S. Virgin Islands qualifies for section 1031 like-kind exchange treatment, provided it produces income for U.S. citizens.
Private Letter Ruling 200027028 Released 7/21/00
The Service has ruled that an exchange agreement that would allow the qualified intermediary to distribute funds from an owner's exchange account before the end of the exchange period does not meet the exchange agreement requirements.
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TECHNICAL ADVICE MEMORANDUMS
TAM 200130001 Released 7/27/01 (Adobe PDF format)
The series of transactions engaged in by Taxpayers as described in this case were not like-kind exchanges qualifying for tax deferral under § 1031 of the Code, but rather were a series of purchases and sales taxable under § 1001.
TAM 200126007 Released 6/29/01 (Adobe PDF format)
Whether two 1995 multi-party exchange transactions to which the Taxpayer was party will be denied §1031 non-recognition treatment as exchanges which were part of a transaction (or series of transactions) structured to avoid the purposes of §1031(f).
TAM 200105004 Released 2/2/01
The Service has ruled in technical advice that a parent that transferred an installment note to a partnership did not exchange the obligation under section 1031 or constructively receive payments on it under section 451.
TAM 200039005 Released 9/29/00
The Service has ruled in technical advice that a transaction was not a deferred exchange but was a reverse-Starker transaction that did not qualify as a like-kind exchange.
TAM 200035005 Released 9/1/00
The Service has ruled in technical advice that a corporation's exchange of its Federal Communications Commission radio broadcast station licenses for an FCC television broadcast station license is a like-kind exchange subject to the non-recognition rules.
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INTERNAL REVENUE BULLETINS
Internal Revenue Bulletin: 2003-44 T.D. 9091
Special Depreciation Allowance
Internal Revenue Bulletin: 2003-41 T.D. 9082
Revision of Income Tax Regulations Under Sections 897, 1445, and 6109 to Require Use of Taxpayer Identifying Numbers on Submissions Under the Section 897 and 1445 Regulations
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UNIFORM ISSUE LIST
UIL: 1031.02-00
Like-Kind Exchanges Involving Federal Communications Commission Licenses
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