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Like-Kind Exchanges of Real Estate Survive the Tax Cuts and Jobs Act

A Glass Half Full for Section 1031

The Tax Cuts and Jobs Act (TCJA) was signed into law on December 22, 2017.  The TCJA limits deferral under IRC Section 1031 to real property that is not held primarily for sale.  Exchanges of personal property, capital assets, intangibles and collectibles are no longer permitted. … Read More

Our Toll-free phone numbers are no longer in use.

PLEASE NOTE:  Our toll-free numbers, (877) 446-1031 and (877) 448-1031 are no longer in use. To reach our San Diego office, please dial (619) 213-7639.  To reach our San Francisco office, dial (415) 596-6749.  Or call our Chicago office at (312) 580-9640.… Read More

New York State Advisory Opinion

We are happy to report that CDEC recently received an Advisory Opinion from the New York State Department of Taxation and Finance that we thought might be of interest to you. The Advisory Opinion addresses Real Estate Transfer Taxes in a reverse exchange under IRC Section 1031. … Read More

Upcoming FCC Incentive Auction to Relinquish Spectrum Usage Rights

Commencing in December 2015, broadcasters are being given an opportunity to participate in a Federal Communications Commission ("FCC") incentive auction to relinquish their spectrum usage rights in exchange for payments to be disbursed by the US Treasury. Winning bidders can use a portion of the relinquishment proceeds to facilitate a channel sharing arrangement with another broadcaster that will not participate (or will conditionally participate) in the auction and that will remain on the air following the auction. Until recently, the FCC has wanted all proceeds to be paid only to the winning broadcaster and it was up to the relinquishing broadcaster to choose how to use such proceeds. … Read More

Beware the Shortened Exchange Period

Real estate, legal and tax professionals are intimately familiar with the requirements under IRC Section 1031 that Replacement Property must be identified within 45 days after the date the Relinquished Property is transferred in the exchange. But overlooked occasionally is language from Section 1031(a)(3)(B) which defines the 180-day exchange period during the last quarter of the year. … Read More

Successive Exchanges Between Related Parties (PLR 201048025)

In the newly released Private Letter Ruling 201048025, the IRS concluded that successive exchanges between related parties are not ineligible for tax-deferral under IRC Section 1031 provided all parties hold the properties received in the exchanges for two years.… Read More

Related Party Case - Ocmulgee Fields, Inc.

The 11th Circuit Court of Appeals affirmed the U.S. Tax Court's decision in Ocmulgee Fields, Inc. (132 T.C. 105, 122-23 (2009)), which involved the sale of relinquished property to an unrelated party followed by the acquisition of replacement property from a related party in a transaction designed to qualify for non-recognition of gain under IRC Section 1031.… Read More

Sale of Relinquished Property to a Related Party (PLR 201027036)

In PLR 201027036 the IRS concludes that the sale of relinquished property to a related party, that does not intend to hold the property for two years, does not run afoul of the restrictions under IRC §1031(f)(4).

Taxpayer is the parent corporation of a group of corporations that conduct a global leasing business. Company X is a domestic corporation that is wholly owned by Taxpayer. Company X indirectly owns Company Y and Company Z, both domestic corporations. Company X also directly or indirectly owns Company F, which is organized in country G and is a controlled foreign corporation. Company F is classified as a corporation for U.S. federal income tax purposes. Companies X, Y, Z, and F are related parties under IRC §267(b)(3).

In the course of its leasing operations, Taxpayer may dispose of, or release, an asset at the end of the lease term. As market conditions dictate, Taxpayer may also dismantle the asset and sell the component parts.

Taxpayer proposes to sell the off-lease assets owned by Company F to Company Y, who will dismantle the assets and sell the component parts within a two year window.

Alternatively, Taxpayer may sell off-lease assets owned by Company F to Company Z who may release the assets or consign the assets such that the assets will be sold within a two year window.

Taxpayer represents that it will acquire replacement assets from a third-party manufacturer that is not a related party and that the transaction will be facilitated by a Qualified Intermediary.

The IRS concludes that Taxpayer is exchanging property with a Qualified Intermediary and not with a related party, thereby rendering the analysis under IRC§1031(f)(1) irrelevant.

Additionally, the IRS asserts the transaction does not run afoul of the provisions of IRC §1031(f)(4) which seek to exclude from non-recognition of gain treatment any transaction, or series of transactions, structured to avoid the purposes of IRC §1031(f).

In its analysis, the IRS posits that Company F and Companies Y and Z did not exchange properties either directly or indirectly through a Qualified Intermediary and that Company F did not transfer relinquished property to Company Y and Company Z in an attempt to circumvent the related party rules found at IRC §1031(f). Further, the parties did not seek to exchange high basis property for low basis property in anticipation of the sale of the low basis property and as such, the exchange qualifies for non-recognition.

Finally, the ruling concludes that because the income from a controlled foreign corporation is computed as if the entity were a domestic corporation, a valid like-kind exchange is respected when computing Company F's income. As such, Company F has income from the transaction only to the extent of any gain recognized under Section 1031.… Read More

Exchange of Emission Credits Deemed Like-Kind

PLR 201024036 concludes that the underlying nature and character of the rights conferred by emissions credits for nitrogen oxide emissions (NOE) are like-kind to the rights conferred by emissions credits for volatile organic compounds (VOC).… Read More

Commercial Real Estate and IRC Section 1031

Capmark Real Estate, one of the country's largest commercial real estate lenders, filed for bankruptcy protection on Sunday October 25, 2009 signaling that the problems facing commercial real estate investors and lenders are far from over.… Read More