§1031 — Exchange of real property held for productive use or investment

Respondent contends that Alderson, Biggs, and the taxpayer-favorable cases we cited in Biggs are inapposite because they concerned forward exchanges and a reverse exchange is at issue here.

Respondent contends that Alderson, Biggs, and the taxpayer-favorable cases we cited in Biggs are inapposite because they concerned forward exchanges and a reverse exchange is at issue here.

Respondent contends that Alderson, Biggs, and the taxpayer-favorable cases we cited in Biggs are inapposite because they concerned forward exchanges and a reverse exchange is at issue here.

Unlike the taxpayer in Frank Lyon, which entered into a sale-leaseback with another taxable entity such that the transaction was tax neutral as a result, petitioner entered into a transaction with a tax-exempt entity. This would allow petitioner to double-dip into the tax benefits by deferring the tax under section 1031 and using deductions related to the test transactions.

Unlike the taxpayer in Frank Lyon, which entered into a sale-leaseback with another taxable entity such that the transaction was tax neutral as a result, petitioner entered into a transaction with a tax-exempt entity. This would allow petitioner to double-dip into the tax benefits by deferring the tax under section 1031 and using deductions related to the test transactions.

"In order to constitute a deferred exchange, the transaction must be an exchange (i.e., a transfer ofproperty for property, as distinguished from a transfer ofproperty for money)." Sec. 1.1031(k)-1(a), Income Tax Regs.

In making this coniparison, we consider the respective interests in the physical properties, the nature ofthe title conveyed, the rights ofthe parties, the duration ofthe interests, and any other factor bearing on the nature or character ofthe properties as distinguished from their grade or quality. Peabody Natural Res. Co. v. Commissioner, 126 T.C. at 273; Koch v. Commissioner, 71 T.C. at 65-70; sec. 1.1031(a)-1(b), Income Tax Regs.

a) provides : -"An inadequate description under the preceding [quoted] sentence shall not invalidate such notice ." Respondent ' s explanation of his deficiency determination informed petitioner that it was required to recognize gain because it'had not established that it had satisfied the .section 1031(f)-special rules applicable to like kind exchanges between related parties . In that respect, Shea v . Commissioner,, 112 T .C . 183 , 192 (1999),-is distinguishable .

54, 65-70 (1978), a case which petitioner contends is indistinguishable from the circumstances we consider here. In that case, this Court held that two parcels of fee simple real property were like kind, under section 1031(a), even though one parcel was subject to 99-year condominium leases.

Commissioner, supra, unlike the sec. 1031 regulations applicable here, contained no explicit coordination with the installment sale provisions of sec.

Section 1031 provides rules for the tax treatment ofexchanges ofreal property held for productive use or investment.

Section 1031 provides rules for the tax treatment ofexchanges ofreal property held for productive use or investment.

We hold that any such amount is includible in petitioners' income.3 With respect to exception 1 (discussed above) to the general rule established by Clark, Concord Instruments, and Rev.

We hold that it did.

We hold that petitioners did not hold the Memorial Drive property for either purpose; (2) whether petitioners properly allocated fair market values to certain real properties for purposes ofdetermining gain recognized in the section 1031 exchange.

We hold that it does; (2) whether $60,000 paid to petitioners in settlement ofa lawsuit is taxable income to petitioners.

Section 1031 provides that no gain or loss is recognized when business or investment property is exchanged solely for other business or investment property of like kind.

The sale was part of an exchange pursuant to section 1031.

6662(a) 2003 $118,887 $23,777 2004 10,344 2,069 The following issues remain for our decision :' (1) Whether, pursuant to section 1031(a), petitioners may defer recognition of the gain realized upon the sale of certain real property for tax year 2003 ; (2) whether losses from petitioners' rental properties constitute losses from a passive activity pursuant to section 469 for tax years 2003 and 2004 ; and (3) whether petitioners ar

The proceeds of the sale of the condominium were deposited with First American Exchange Corporation (FAEC), as petitioner intended to purchase other property in a like-kind exchange pursuant to section 1031.

Petitioners have moved for summaryjudgment, urging that we havejurisdiction and that they are entitled to like-kind exchange treatment under section 1031 as a matter oflaw.¹ After selling a condominium unit in 2012, petitioners designated as the re- placement property a purported 25% interest in an apartment building. Respon- dent determined that the replacement property petitioners acquired was in fact an interest in a partnership. As in effect for 2012 the Code provided that like-kind exchange

Section 1031 Deferral ofGain Recognition A. Background The Commissioner's determinations set forth in a notice ofdeficiency are generally presumed correct, and the taxpayerbears the burden ofproving that the determinations are in error." See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Petitioner contends that he is entitled to nonrecognition treatmentpursuant to section 1031 with respect to the gains realized as a result ofhis dispositions of the Third Avenue, Montclair, and Las P

(4) the qualified intermediary transferred the like-kind property to petitioner, and (5)' petitioner realized a gain on the exchange. Petitioner claims that its exchange is a nontaxable exchange under the so-called like-kind exchange rules found in section 1031. Respondent claims that section 1031(f)(4) requires recognition because petitioner “structured” the transaction “to avoid the purposes” of the rules for exchanges between related persons. Respondent concedes that, but for the application

20328-04 with respect to the issue of whether coal supply contracts that burdened coal mine property received by a partnership, as part of an exchange under section 1031, are like-kind property to the gold mining property transferred by the partnership.

, respondent determined that petitioner must recognize $12,041,026 in gains, which consists of the gains that Teruya deferred on its Federal income tax return for its taxable year ending March 31, 1996.6 Discussion This case presents an issue of first impression regarding the application of section 1031(f), which restricts nonrecognition of gain or loss with respect to like-kind exchanges between related persons.7 I. General Requirements for Like-Kind Exchanges Section 1031(a)(1) generally provi

The first sale was part of a section 1031 exchange in which Birchwood Holdings transferred 1,766 acres in Colleton County to Westvaco Corporation (collectively, the Birchwood sale), on January 29, 1999.

an increased addition to tax under section 6651(a)(1) of $6,322 for 2000. After concessions by the parties, the issues for decision are: 1. Whether petitioner’s sale and purchase of mutual fund shares in 2000 qualifies as a like-kind exchange under section 1031. We hold that it does not. 2. Whether petitioner may carry forward charitable contribution deductions from 1995 to 2000 in the amount of $977. We hold that he may not. 3. Whether we have jurisdiction to decide if respondent erroneously a

Teruya may, in its sole discretion, structure this transaction as a tax-deferred exchange pursuant to section 1031 of the Internal Revenue Code.

Rayonier] has agreed to purchase from * * * [petitioner] certain timber growing on property of * * * [petitioner]; and WHEREAS, * * * [Rayonier] has agreed to cooperate with * * * [petitioner] in the effectuation of a tax free exchange, pursuant to Section 1031 of the Internal Revenue Code; and WHEREAS, certain property will be designated by * * * [petitioner] to be acquired for the purpose of an exchange within one hundred eighty (180) days of the sale of the timber by * * * [petitioner] to * *

Petitioners remind us, and we are well aware — as we stated in another section 1031 exchange case in which we held against the taxpayer — that “Notwithstanding the familiar and long-standing rule that exemptions are to be narrowly or strictly construed, * * * section 1031 has been given a liberal interpretation.” Estate of Bowers v.

on petitioners' Federal income tax (tax), as follows: Taxable Accuracy- Year Ended Deficiency Addition to Tax Related Penalty February 28, 1991 $133,316 $50,286 $40,228 February 29, 1992 59,808 5,981 11,962 February 28, 1994 158,230 39,558 31,646 The issues remaining for decision are: (1) Are petitioners entitled to nonrecognition treatment under section 1031 with respect to certain gains realized by petitioner Orlando Industrial Properties, Inc.

r petition in this case. The primary issue in the underlying case, Beeler v. Commissioner, T.C. Memo. 1997-73, was whether petitioners' disposition of 76.5 acres of land in Pasco County, Florida, qualified for treatment as a like-kind exchange under section 1031. Respondent determined in the notice of deficiency and contended throughout the case that some or all of the gain - 3 - realized by petitioners from the exchange of the 76.5 acres did not qualify for nonrecognition under section 1031 bec

- 4 - In the notice of deficiency, respondent determined that petitioners failed to meet the requirements for a section 1031 exchange and included in petitioners’ income capital gain from the sale of the Pacific Grove property.

26,000 in July 1991 and the West Center Street property for $118,500 in 1986. In 1993, petitioners moved to Franklin, Tennessee. They decided to dispose of these two residential rental properties by exchanging them for like-kind property pursuant to section 1031. Accordingly, petitioners entered into two accommodation agreements with Heritage Title Services, Inc. (accommodation agreements), pursuant to which they agreed to sell the two residential rental properties and purchase other qualifying

This case involves the question of whether petitioner may defer recognition of gain from the disposition of certain real - 2 - property under section 1031.1 More specifically, we must decide whether petitioner held the exchanged real property primarily for sale so that the gain is taxable in the 1989 taxable year.

Buyer may wish to qualify this transaction under Section 1031 of the Internal Revenue Code; therefore, Buyer shall have the right to cause Seller to accept suitable property in exchange for all or part of Seller's property hereunder; provided that, property exchanged to Seller shall be subject to immediate purchase by a third party, and provided further that the cost to Seller of accepting the ex

The issues for our consideration are: (1) Whether petitioners may defer recognition of gain from the disposition of certain real property under section 1031, (2) if the transaction does not qualify for section 1031 exchange, whether petitioners are entitled to report the gain in 1990 under the installment sale method, and (3) whether petitioners are liable for a fraud penalty under section 6663.

The issues for our consideration are: (1) Whether petitioners may defer recognition of gain from the disposition of certain real property under section 1031, (2) if the transaction does not qualify for section 1031 exchange, whether petitioners are entitled to report the gain in 1990 under the installment sale method, and (3) whether petitioners are liable for a fraud penalty under section 6663.

qualifies for income tax deferral pursuant to section 1031; and (2) whether petitioners Ridgemark Corp.

Said purchase agreement, assigned by EST to Penn-Daniels, provided that the corporation, as seller, might choose to designate certain properties, allegedly for purposes of achieving a tax-free exchange under section 1031, and Penn-Daniels, as 6 buyer, agreed to participate in such exchange, provided that the corporation, as seller, would reimburse the buyer for all expenses associated therewith, that the buyer would not actually take title to any such designated exchange property, and that the b

Said purchase agreement, assigned by EST to Penn-Daniels, provided that the corporation, as seller, might choose to designate certain properties, allegedly for purposes of achieving a tax-free exchange under section 1031, and Penn-Daniels, as 6 buyer, agreed to participate in such exchange, provided that the corporation, as seller, would reimburse the buyer for all expenses associated therewith, that the buyer would not actually take title to any such designated exchange property, and that the b

The remaining cases cited by petitioner involve the issue of exchanges under section 1031.3 All of those cases are inapposite.

The parties agree that if section 1031 does not apply to the disposition of Sunshine Liquor, then petitioners must recognize a long-term capital gain of $133,047 on the transaction.

Grand Bay property in Mobile, Alabama, for $742,000.3 In 2003 petitioners filed a Form 8824, Like-Kind Exchanges, with their Form 1040, U.S. Individual Income Tax Return, treating these transactions as eligible for deferred recognition ofgain under section 1031. Petitioners' 2003 Federal income tax return was not adjusted or audited by respondent. On their 2003 Form 8824, petitioners reported carrying over a basis of$1,894,4364 from Jubilee Pointe to the three properties. They distributed their

Grand Bay property in Mobile, Alabama, for $742,000.3 In 2003 petitioners filed a Form 8824, Like-Kind Exchanges, with their Form 1040, U.S. Individual Income Tax Return, treating these transactions as eligible for deferred recognition ofgain under section 1031. Petitioners' 2003 Federal income tax return was not adjusted or audited by respondent. On their 2003 Form 8824, petitioners reported carrying over a basis of$1,894,4364 from Jubilee Pointe to the three properties. They distributed their

on home (vacation home 2) closer to their principal residence. In 2000, Ps disposed of vacation home 1 and acquired vacation home 2 pursuant to a series of transactions intended to qualify as a tax- free, like-kind exchange of those properties under sec. 1031, I.R.C. Prompted by the need for liquidity incident to their then-pending divorce, Ps were holding vacation home 2 for sale at the time of trial. Ps and their children used both vacation homes exclusively for recreational purposes, and Ps n

property), immediately after petitioners acquired it in a section 1031 like-kind exchange in 1994.

ean True (24.1316 percent), and the True sons (1.1583 percent each). Second, Smokey Oil transferred the ranchlands to True Oil in exchange for selected productive oil and gas leases, which the parties treated as a like-kind, tax-free exchange under section 1031. Third, True Oil immediately distributed the newly acquired ranchlands to the individual partners of True Oil (Dave and Jean True and the True sons) as tenants in common. Fourth, the partners then contributed their undivided interests in

ean True (24.1316 percent), and the True sons (1.1583 percent each). Second, Smokey Oil transferred the ranchlands to True Oil in exchange for selected productive oil and gas leases, which the parties treated as a like-kind, tax-free exchange under section 1031. Third, True Oil immediately distributed the newly acquired ranchlands to the individual partners of True Oil (Dave and Jean True and the True sons) as tenants in common. Fourth, the partners then contributed their undivided interests in

t the OCPND's interest in the Peveto and that he was interested in acquiring a piece of real property owned by a longtime business associate (Ms. Stark). Ms. Whitfield and Mr. Wickersham discussed the possibility of a like-kind exchange pursuant to section 1031. Mr. Wickersham approached Ms. Stark about selling him some land she owned in a three-way transaction, and she agreed to the sale. Sometime between August 11 and 18, 1989, however, Ms. Stark's attorney informed Mr. Wickersham that he (the

The issues we considered were: (1) Whether petitioners may defer recognition of gain from the disposition of certain real property under section 1031, (2) if the transaction does not qualify for section 1031 exchange, whether petitioners are entitled to report the gain in 1990 under the installment sale method, and (3) whether petitioners are liable for a fraud penalty under section 6663.

ness purposes. To the contrary, petitioner testified that he used a second - 25 - automobile, a 1981 Buick, to make business trips on behalf of H&B. Petitioners also appear to argue that petitioner received the Lincoln in a like-kind exchange under section 1031. We find petitioners' argument without merit. Petitioner failed to introduce documentary evidence that he received the Lincoln Mark VII in exchange for a tractor- trailer, and there is no documentary evidence that petitioner owned a tract

Ng is entitled to defer the gain from the sale of certain real estate pursuant to section 1031; (4) whether Ms.

After concessions, the issue for decision is whether petitioners may defer recognition of all of the gain that they received for an exchange involving real property in 1991 under section 1031, as petitioners contend, or only part of the gain, - 2 - as respondent contends.

Ng is entitled to defer the gain from the sale of certain real estate pursuant to section 1031; (4) whether Ms.

A transfer shall not be treated as failing to be an applicable asset acquisition merely because section 1031 applies to a portion of the assets transferred.

The purchase and sale agreement (sale agreement) signed by them provided that “It is agreed between the parties that Purchasers shall assist Seller in consummating a Section 1031 Tax Deferred Exchange.

ioners’ argument that they should not be required to recognize gain from the Facility Sale on the basis that the Facility Sale and the Facility Purchase were intended to, although they did not technically, comply with the like-kind exchange rules of section 1031. Petitioners apparently did not specifically contest the additions to tax assessed by the IRS. The OIC was rejected, and 3 [*3] Appeals issued a final determination sustaining the proposed levy (Prior NOD). III. Before CDP Hearing at Iss

he Freeway Pit from petitioner and paid petitioner the option price of $6.9 million. 2013 Tax Returns, IRS Examination, and Notice of Deficiency Petitioner used its portion of the sale proceeds, $6.9 million, to enter into a like-kind exchange under section 1031. The replacement property selected as part of this exchange cost approximately $14 million, and petitioner assumed approximately $7 million in debt as part of that transaction. Petitioner hired Horty & Horty, P.A., to prepare its tax ret

-20; Jack R. Gerhardt and Shelley R. Gerhardt, Docket No. 11129-20; and Tim L. Gerhardt and Pamela J. Holck Gerhardt, Docket No. 11146-20. Served 04/20/23 2 property should be deferred because the transaction qualified as a like-kind exchange under I.R.C. § 1031. R did not dispute that the transaction met the requirements of I.R.C. § 1031, but determined that I.R.C. § 1245 precluded deferral of the gain. J and S also sold certain property (MS) in 2017. They reported the net gain from the sale as

Johnson made repeated unprompted references to section 1031 and indicated his awareness of substantive tax provisions that bear upon real estate investing.

2400 Rocky Point On April 15, 2005, petitioners acquired 2400 Rocky Point for a purchase price of$859,000, through a section 1031 exchange and cash.

Petitioner chose to recognize gain on the 45-acre parcel and reinvestthe proceeds from the 50-acre parcel through a section 1031 exchange into property that would be better suited for training horses.6 On June 20, 2006, 5As noted, the Morris Street property, also includes the abutting Washington Street property.

Hey described "roll-over" reliefas a mechanism similar to like-kind exchanges under section 1031, where Dortmund would be able to roll over the book value ofthe trade fair facility to newly acquired land or buildings provided that such assets are acquired in the current or preceding year, or will be acquired in the following four to six years.

At trial petitioner stated: "I will admit that we did abuse section 179." With respect to the fictitious section 1031 like- kind exchange petitioner stated: "We screwed up and we missed a deadline and we didn't handle that one right." Respondent showed that there was a repeated history ofunderpayment oftax due to underreported income.

Hey described "roll-over" reliefas a mechanism similar to like-kind exchanges under section 1031, where Dortmund would be able to roll over the book value ofthe trade fair facility to newly acquired land or buildings provided that such assets are acquired in the current or preceding year, or will be acquired in the following four to six years.

Hey described "roll-over" reliefas a mechanism similar to like-kind exchanges under section 1031, where Dortmund would be able to roll over the book value ofthe trade fair facility to newly acquired land or buildings provided that such assets are acquired in the current or preceding year, or will be acquired in the following four to six years.

Hey described “roll-over” relief as a mechanism similar to like-kind exchanges under section 1031, where Dortmund would be able to roll over the book value of the trade fair facility to newly acquired land or buildings provided that such assets are acquired in the current or preceding year, or will be acquired in the following four to six years.

One antichurning rule says that section 1250 property acquired by the taxpayer after December 31, 1986, does not qualify for MACRS if it was acquired in an exchange described in section 1031, 1033, 1038, or 1039.

KTS also opined in its report that generally there are methods to avoid paying the built-in LTCG tax by engaging in a section 1031 like-kind exchange or by converting a C corporation to an S corporation .

y Properties, Inc., and negotiated for Parkwood to purchase the Huntington Park property for $1.1 million. The purchase price included a $100,000 broker's SHaven Exchange Services, L.L.C., is in the business of serving as a qualified intermediary in sec. 1031 exchanges. - 4 - commission to Real Estate North. Petitioner secured a loan from Branch Bank & Trust to fund the purchase. Petitioner attended the real estate closing on February 7, I 2003, in his dual capacity as broker and as the purchase

Taxpayer transferred its interest in * * *, a disregarded entity, the sale of such interest is treated as a sale of the assets of the disregarded entity for federal income tax purposes.”); Priv. Ltr. Rul. 200251008 (Sept. 11, 2002) (For purposes of sec. 1031 like-kind exchange provisions: “[TJransfer of all the interest in * * * [disregarded entity] will be treated as a transfer of the assets of * * * [disregarded entity].”). The majority at least conditionally accepts respondent’s reading of t

Commissioner, T.C. Memo. 1996-482 (A taxpayer’s intelligence, education, and tax expertise are also relevant for purposes of determining fraudulent intent). At trial, petitioner testified: Q Now, in relation to mortgage payments--the receipt of mortgage payments--if those payments went to Mr. Miles as trustee, you related how the

On the 1991 return, Agent Urrutia found that an exchange of five duplexes and rental properties owned by petitioner for a turkey ranch owned by Horn Construction did not qualify for section 1031 exchange treatment, requiring petitioner to recognize $497,000 in capital gain.

Principles used for deciding whether an exchange is like kind under section 1031 also apply in deciding whether replacement property is property of a like kind under section 1033.

For 1990, petitioners (1) reported the sale of the office building and purchase of the seven houses as a like-kind exchange under section 1031, (2) deducted a bad debt and Schedule C expenses, and (3) claimed that they overpaid their 1990 Federal income tax by $1,495.

Among the many factors listed in the letter were (1) Lancaster's ability to perform a friendly condemnation, and (2) section 1031 treatment for the exchange of the 23d Street property.

Two types of transfers of sports franchises were expressly exempted from the section 1056(a) basis limitation, section 1031 like-kind exchanges and transfers from a decedent.

for petitioners' one-half interest. On their 1988 return, petitioners reported that their adjusted basis in the Detroit properties was $132,840 and that the Detroit properties were sold in a transaction in which no gain or loss was recognized under section 1031. By the end of 1988, petitioners had taken depreciation on the Detroit properties equal to $14,073. On or about July 10, 1986, petitioners acquired an interest in certain real property in Huntington Beach, California, known as the 8th St

Two types of transfers of sports franchises were expressly exempted from the section 1056(a) basis limitation, section 1031 like-kind exchanges and transfers from a decedent.

Fountain was to take title to the Harrington and Virgil properties and act as seller but would hold the sale proceeds until petitioner could find replacement property to make it appear as though a like-kind exchange under section 1031 had occurred within the time allowed by the Internal Revenue Code.

Around the time petitioner settled the McMahon litigation, it was trying to refinance the Burke Property and also exchange it under section 1031 for another piece of property.

for the Court to decide: (1) Whether the transfer of a certain property by petitioner husband in 1988, followed by the receipt by him of certain other properties in 1989, constituted a tax-free exchange of like-kind properties within the meaning of section 1031 for the year 1988; and (2) whether, if such transfer and receipt of properties does not qualify for tax-free exchange treatment under section 1031, but is rather a sale and exchange of properties on which gain or loss is to be recognized,

In Exhibit AL respondent proposed that no gain or loss should be recognized by petitioners on the trade-in of a Chevrolet Cavalier because they did not follow the rules under section 1031 for like kind exchanges when they traded in the Chevrolet Cavalier on the lease of a Chevrolet van.