1031 Advisor

Related Party Exchanges continue to generate controversy, in part, because there are no tax regulations to provide guidance. There are very few cases to refer to and the rulings provide inconsistent results. Join us for our 1031 Exchange Planning Topics discussion forum during the month of July 2009 for strategies in effecting related Party Exchanges at http://www.linkedin.com/in/steverobisontaxman.

X owns a highly appreciated shopping mall, Plaza One, which will be sold to an unrelated buyer. X acquires Plaza Two from a related party Y in a like kind exchange pursuant to a Reverse Exchange. The related party has little or no taxable gain on the property to be sold. Subsequent to the purchase of the replacement property, Plaza One is sold and the proceeds are used to acquire the replacement property B from the EAT. Is this a good exchange? Revenue Ruling 2002-83; Ocmulgee Fields, Inc.; Teruya Brothers
Same facts as above except that Y has greater gain from the sale Plaza Two, but Plaza Two is a flow through entity and Plaza One is a C Corporation. Is this a good exchange? Revenue Ruling 2002-83; Ocmulgee Fields, Inc.; Teruya Brothers
Same facts as question #2, except that in order for Y to be a related party, Section 267(c) in it’s entirety must be incorporated into Section 267(b).
X owns a highly appreciated shopping mall, Plaza One. X wants to acquire Plaza Two from a unrelated party Y in a like-kind exchange. X acquires Plaza Two as a Reverse Exchange, advancing all the monies necessary to acquire the property using an EAT. X’s Reverse Exchange is running out of time, so he causes a related party Z to acquire Plaza One at fair market value. The proceeds are used to acquire Plaza Two and the Reverse Exchange is finished before the end of the exchange period. Party Z then sells Plaza One 6 months later at little or no gain. Ltr. Rul. 200712013; Ltr. Rul. 200709036
Two related individuals each own a 50% undivided tenant in common interest in realty. The two related parties exchange their respective 50% undivided interests for a 100% whole interest in half the land each. Is this a good exchange? see Rev. Rul. 73-476, 1973-2 CB 300; Ltr. Rul. 199926004; PLR 200919027
X owns a highly appreciated shopping mall, Plaza One, which will be sold to an unrelated buyer. X acquires Plaza Two from a related party Y in a like-kind exchange pursuant to a Forward deferred Exchange. The related party Y has a high tax basis in the property to be sold. Plaza One is sold and the proceeds are used to acquire the replacement property B from the QI. Is this a good exchange? TAM 9748006; FSA 19993100
X owns a highly appreciated shopping mall, Plaza One, which will be sold to an unrelated buyer. X acquires Plaza Two from a related party Y in a like-kind exchange pursuant to a Forward deferred Exchange. The related party Y has a loss on the property to be sold. Plaza One is sold and the proceeds are used to acquire the replacement property B from the QI. Is this a good exchange? TAM 200126007

Private letter rulings may not be cited as precedent.

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