You have no items in your shopping cart.
Search
Filters

Real Property Exchanges

Advise your clients confidently on a 1031 exchange. Step-by-step guidance and forms for structuring and documenting exchanges.

Advise your clients confidently on a 1031 exchange. Step-by-step guidance and forms for structuring and documenting exchanges.

  • Full coverage from basics to sophisticated tax planning
  • Statutes regulating qualified intermediaries doing business in California
  • Safe harbors for qualified intermediaries and qualified exchange accommodation agreements
  • Up-to-date, state-of-the-art forms
  • Latest case law and revenue rulings
  • Practice tips from top experts in the field
  • FIRPTA compliance
OnLAW RE94560

Web access for one user.

 

$ 385.00
Print RE33560

3d edition, looseleaf, updated 6/18

 

Availability of this item is delayed because of the COVID-19 crisis. We will ship orders as soon as possible after shelter-in-place restrictions are lifted. If you would like immediate online access, consider an OnLAW version.

$ 385.00
Add Forms CD to Print RE23569
$ 99.00

Advise your clients confidently on a 1031 exchange. Step-by-step guidance and forms for structuring and documenting exchanges.

  • Full coverage from basics to sophisticated tax planning
  • Statutes regulating qualified intermediaries doing business in California
  • Safe harbors for qualified intermediaries and qualified exchange accommodation agreements
  • Up-to-date, state-of-the-art forms
  • Latest case law and revenue rulings
  • Practice tips from top experts in the field
  • FIRPTA compliance

1

Introduction to Exchanges

  • I.  GOVERNING LAW  1.1
    • A.  Internal Revenue Code §1031  1.2
      • 1.  Mandatory Application  1.3
      • 2.  History of Exchange Provisions  1.4
      • 3.  Statutory Rationale  1.5
        • a.  Administrative Convenience Rationale  1.6
        • b.  Continuity-of-Investment Rationale  1.7
      • 4.  Liberal or Strict Construction  1.8
      • 5.  Substance Versus Form  1.9
      • 6.  Codification of Economic Substance Doctrine  1.9A
      • 7.  2017 Modification of IRC §1031  1.9B
    • B.  Treasury Regulation §1.1031  1.10
    • C.  Revenue Rulings  1.11
    • D.  Revenue Procedures  1.12
    • E.  Letter Rulings, Technical Advice Memorandums, and Chief Counsel Advice  1.13
    • F.  California Revenue and Taxation Code  1.14
  • II.  TERMINOLOGY  1.15
    • A.  Like-Kind, Tax-Deferred, Tax-Free, and Nontaxable Exchanges  1.16
    • B.  Properties Involved in the Transaction
      • 1.  Relinquished and Replacement Property  1.17
      • 2.  Excluded Property  1.18
      • 3.  Other Property (“Boot”)  1.19
    • C.  Parties to the Exchange  1.20
    • D.  Partially Taxable Exchanges  1.21
    • E.  Simultaneous, Deferred, and Reverse Exchanges  1.22
  • III.  NONTAX CONSIDERATIONS IN REAL ESTATE LIKE-KIND EXCHANGES  1.23
  • IV.  TAX CONSIDERATIONS OF LIKE-KIND EXCHANGES
    • A.  Tax Advantages
      • 1.  Tax Obligation Will Be Deferred  1.24
      • 2.  Exchange May Be Combined With Installment Sale  1.25
      • 3.  Depreciation Recapture May Be Transferred  1.26
      • 4.  Conversion of Gain or Loss Character  1.27
      • 5.  Basis Shifting  1.28
    • B.  Tax Disadvantages
      • 1.  Basis in Replacement Property Will Be Reduced  1.29
        • a.  Effect of Passive Activity Rule  1.30
        • b.  Effect of At-Risk Limitations  1.31
      • 2.  Capital Gain May Be Converted to Ordinary Income  1.32
      • 3.  Suspended Losses Will Not Be Released  1.33
      • 4.  Losses Cannot Be Recognized  1.34
      • 5.  Deferral May Cause Bunching of Income in Subsequent Year  1.35
  • V.  CLASSIFICATION OF EXCHANGE TRANSACTIONS  1.36
    • A.  By Parties to the Exchange  1.37
      • 1.  Two-Party Exchanges  1.38
      • 2.  Multi-Party Exchanges Involving an Intermediary  1.39
      • 3.  Multiple Party Exchanges Without Intermediaries: “Round-Robins” and Other Three-Way Exchanges  1.40
    • B.  Timing of the Transactions  1.41
      • 1.  Simultaneous Exchange  1.42
      • 2.  Deferred Exchange  1.43
      • 3.  Reverse Exchange  1.44
    • C.  Assets Transferred and Received  1.45
  • VI.  ROLES OF ANCILLARY PARTIES TO THE EXCHANGE
    • A.  Attorney
      • 1.  Attorney’s Role  1.46
      • 2.  Attorney as Intermediary  1.47
      • 3.  Attorney’s Liability
        • a.  Identifying the Client  1.48
        • b.  Liability for Tax Advice  1.49
        • c.  Tax Fraud  1.50
      • 4.  Attorney Fees  1.51
    • B.  Tax Specialist  1.52
    • C.  Real Estate Agent  1.53
    • D.  Escrow Agent  1.54
      • 1.  Escrow Documents  1.55
      • 2.  Liability Issues  1.56
      • 3.  Qualified Escrow Accounts  1.57
  • VII.  GLOSSARY  1.58

2

Requirements for Like-Kind Exchanges

  • I.  BASIC STATUTORY REQUIREMENTS
    • A.  Overview  2.1
    • B.  Eligible Taxpayers  2.2
  • II.  TYPE OF PROPERTY REQUIREMENT
    • A.  Basic Rule (Post–Tax Cuts and Jobs Act)  2.3
    • B.  Special Categories
      • 1.  Trust Interests  2.4
      • 2.  Stock in Certain Water Projects  2.5
      • 3.  Stock in Cooperative Apartments  2.6
      • 4.  Not Applicable to Services  2.7
    • C.  Excluded Real Property (Pre–Tax Cuts and Jobs Act)
      • 1.  Real Property Held Primarily for Sale  2.8
        • a.  Property Relinquished in Exchange  2.9
        • b.  Property Acquired in Exchange  2.10
      • 2.  Rights in Executory Real Property Sales Contracts
        • a.  Exchanges of Buyer’s Interest  2.11
        • b.  Exchanges of Seller’s Interest  2.12
      • 3.  Tax Exempt Use Subject to a Lease
        • a.  “Tax-Exempt Use Loss” Restrictions  2.13
        • b.  “Tax-Exempt Use Property” Defined  2.14
        • c.  “Tax-Exempt Use Property” Qualifying as Relinquished or Replacement Property  2.15
        • d.  Application of IRC §470  2.16
    • D.  Excluded Personal Property (Pre–Tax Cuts and Jobs Act)  2.17
      • 1.  Stock in Trade  2.18
      • 2.  Stocks, Securities, and Evidences of Interest  2.19
      • 3.  Bonds, Notes, Debt Securities, and Other Evidence of Indebtedness  2.20
      • 4.  Partnership Interests
        • a.  General Exclusion of Interests in Partnership  2.21
        • b.  Status of Tenancy-in-Common Interests  2.22
        • c.  Exception for Acquisitions of All Remaining Interests in Partnership  2.23
      • 5.  Certificates of Trust or Beneficial Interests  2.24
      • 6.  Choses in Action  2.25
    • E.  Mortgaged Property With Zero or Negative Equity  2.26
  • III.  QUALIFIED USE REQUIREMENT  2.27
    • A.  “For Productive Use in Trade or Business”  2.28
    • B.  “For Investment”  2.29
    • C.  Holding Requirement
      • 1.  Taxpayer’s Qualified Use Determined as of Time of Exchange  2.30
      • 2.  Taxpayer’s Purpose May Change During Holding Period  2.31
      • 3.  Courts and IRS Disagree on Effect of Taxpayer’s Acquiring Property Solely to Exchange It  2.32
      • 4.  Length of Holding Period Affects Characterization of Qualified Use  2.33
        • a.  Property Relinquished in Exchange  2.34
        • b.  Property Acquired in Exchange  2.35
      • 5.  Change in Form of Investment Complicates Characterization of Qualified Use  2.36
        • a.  Relinquished Property Acquired From Related Partnership or Corporation  2.37
        • b.  Replacement Property Contributed to Related Partnership or Corporation  2.38
        • c.  Contributions To, Receipt From, and Other Uses of Disregarded Entities  2.39
        • d.  Midstream or Postexchange Corporate Reorganizations  2.40
      • 6.  Change in Economic Arrangements Before or After Exchange  2.41
        • a.  Leasing Relinquished Property to Third Party Before Exchange  2.42
        • b.  Relinquished Property Sale Option  2.43
        • c.  Replacement Property “Puts” and “Calls”  2.44
    • D.  Personal Residences  2.45
      • 1.  Limitations Under IRC §121  2.46
      • 2.  Use of Property as Home and Business  2.47
      • 3.  Conversion to Business or Investment Property  2.48
      • 4.  Postacquisition Taxpayer Residential Use of Replacement Property  2.49
    • E.  Vacation Homes  2.50
      • 1.  Moore v Commissioner  2.51
      • 2.  Safe Harbor for Exchanges of Dwelling Units (Rev Proc 2008–16)  2.52
        • a.  Must Be Held for Productive Use in a Trade or Business or for Investment  2.53
        • b.  Personal Use Standards  2.54
        • c.  Timing Rules  2.55
      • 3.  Exchanges of Vacation Homes Outside Safe Harbor  2.56
        • a.  IRC §280A (Deduction for Certain Expenses)  2.57
        • b.  IRC §165 (Deductions for Certain Losses) and §163(h) (Deduction for Certain Interest)  2.58
        • c.  IRC §183 (Hobby Loss Rules)  2.59
  • IV.  LIKE-KIND PROPERTY REQUIREMENT  2.60
    • A.  Real Property  2.61
      • 1.  Real Property Interests Considered to Be of Like-Kind  2.62
      • 2.  Real Property Exchanges Not Considered to Be of Like-Kind  2.63
      • 3.  Leasehold Interests  2.64
      • 4.  Improvements  2.65
      • 5.  Natural Resources  2.66
      • 6.  Government Quotas and Price Support Programs  2.67
      • 7.  Supply Contracts  2.68
    • B.  Identical Properties  2.69
    • C.  Personal Property (Pre–Tax Cuts and Jobs Act)
      • 1.  Not Like in Kind to Real Estate  2.70
      • 2.  Personal Property Like-Kind Principles
        • a.  Generally  2.71
        • b.  IRS Like-Class Guidelines  2.72
        • c.  Intangible Property  2.73
    • D.  Businesses  2.74
  • V.  EXCHANGE REQUIREMENT
    • A.  Sale Versus Exchange  2.75
    • B.  Continued Viability of Exchange Requirement After 1984  2.76
    • C.  Tests Used to Distinguish Sale From Exchange
      • 1.  Receipt-of-Boot Test  2.77
      • 2.  Contractual-Interdependence Test  2.78
        • a.  Transaction Must Be Completed  2.79
        • b.  Evaluating Multiple Party Exchanges  2.80
      • 3.  Integrated-Plan Test  2.81
    • D.  Sale-Leaseback Transactions as Unintended Exchanges  2.82
    • E.  Permitted Preexchange and Postexchange Activities
      • 1.  Transaction Begun as Sale of Relinquished Property Under Purchase and Sale Agreement  2.83
      • 2.  Taxpayer’s Permitted Actions  2.84
        • a.  Multiparty Exchanges: Buyer Acquires Replacement Property From Third Party  2.85
        • b.  Seller of Replacement Property Is Cooperating Party  2.86
      • 3.  Cooperating Parties’ Permitted Activities  2.87
      • 4.  Effects of Direct Deeding  2.88
        • a.  Four-Party Exchanges (Using Separate Intermediary)  2.89
        • b.  Three-Party Exchanges  2.90
    • F.  Effect of Treating Intermediary as Taxpayer’s Agent  2.91
      • 1.  Safe Harbor for Qualified Intermediary  2.92
      • 2.  Nonqualified Intermediaries: Factors Determining Agency
        • a.  Relationship Between Taxpayer and Intermediary Apart From Exchange  2.93
        • b.  Intermediary’s Activities  2.94
        • c.  Relationship Between Taxpayer and Party Other Than Intermediary  2.95
    • G.  Change of Taxpayer Identity During Exchange  2.96
  • VI.  EXCHANGES BETWEEN RELATED PARTIES
    • A.  Overview  2.97
    • B.  Who Are Related Parties?
      • 1.  Generally  2.98
      • 2.  Affiliated Corporations  2.99
      • 3.  Preexchange or Postexchange “Disassociation”  2.100
    • C.  What Dispositions Result in Exchange Disallowance?  2.101
      • 1.  Indirect Dispositions  2.102
      • 2.  Exempt Dispositions  2.103
      • 3.  Tolling of Postexchange Holding Period Requirement  2.104
    • D.  Effect of IRC §1031(f) on Direct Related-Party Exchanges  2.105
    • E.  Effect of IRC §1031(f) on Indirect Related-Party Exchanges
      • 1.  Scope of Application  2.106
      • 2.  Taxpayer Acquisition of Replacement Property From Related Party
        • a.  IRS Published Guidance  2.107
          • (1)  Cash Out by Related Party Seller
            • (a)  Letter Ruling 9748006  2.108
            • (b)  Field Service Advice 199931002  2.109
            • (c)  Letter Ruling 200126007  2.110
            • (d)  Revenue Ruling 2002–83 and Later Guidance  2.111
          • (2)  Exception: When Related Party Seller Also Exchanges  2.112
        • b.  Judicial Analyses  2.113
      • 3.  Sale of Relinquished Property to Related Party  2.114
      • 4.  General Principles  2.115
  • VII.  GLOSSARY  2.116

3

Tax Consequences of Like-Kind Exchanges

  • I.  GENERAL PRINCIPLES  3.1
  • II.  CALCULATING REALIZED GAIN OR LOSS
    • A.  Basic Computation  3.2
    • B.  Adjustments to Amount Realized
      • 1.  Effect of Relinquished Property Sale Expenses  3.3
      • 2.  Effect of Amounts Paid for Replacement Property  3.4
    • C.  Quick-Check Calculation of Realized Gain  3.5
  • III.  CALCULATING RECOGNIZED GAIN
    • A.  Realized Gain Must Be Recognized to Extent Taxpayer Receives Money or “Other Property” in Exchange
      • 1.  General Principles  3.6
      • 2.  Different Equities Create Need to Transfer Money or Other Property  3.7
      • 3.  Definition of “Money” Received by Taxpayer
        • a.  Generally  3.8
        • b.  Definition of “Liabilities” for IRC §1031 Purposes  3.9
      • 4.  Definition of “Other Property” Received by Taxpayer  3.10
      • 5.  When Is Money or Other Property “Received?”  3.11
      • 6.  Taxable Sales or Exchanges of Non-California Property Received in Exchange for California Property  3.11A
      • 7.  Sales of California Property Received in Exchange for Non-California Property  3.11B
    • B.  Money or Other Property as “Boot”
      • 1.  Definition of “Boot”  3.12
      • 2.  Cash Boot  3.13
      • 3.  Mortgage Boot  3.14
      • 4.  Adjusting Mortgage Balances Before Exchange  3.15
        • a.  Independent Economic Substance Test: Offset Permitted  3.16
        • b.  Substance-Over-Form Test: No Independent Economic Substance  3.17
        • c.  Continued Uncertainty in Preexchange Liability Adjustments  3.18
      • 5.  Security Deposits as Cash Boot or Mortgage Boot  3.19
      • 6.  Prepaid Rents as Cash Boot or Mortgage Boot  3.20
    • C.  Tax Consequences of Boot in Exchanges
      • 1.  Generally  3.21
      • 2.  Applying Boot-Netting Rules  3.22
        • a.  Mortgage Boot Received May Be Offset by Mortgage Boot Given  3.23
        • b.  Net Mortgage Boot Received May Be Offset by Cash Boot Given  3.24
        • c.  Cash Boot Received May or May Not Be Offset by Cash Boot Given  3.25
          • (1)  Option Payments and Other Cash Received Before Exchange  3.26
          • (2)  Cash Received During Exchange  3.27
          • (3)  Cash Received After Exchange  3.28
        • d.  Cash Boot Received May Not Be Offset by Mortgage Boot Given  3.29
      • 3.  Short-Cut Method for Applying Boot-Netting Rules  3.30
        • a.  General Rule for Avoiding Gain Recognition in Exchanges  3.31
        • b.  Calculating Amount of Recognized Gain  3.32
      • 4.  Special Rules for Partnerships and Their Partners, With Offsetting Mortgage Boot  3.32A
    • D.  Recognizing Gain or Loss on Transfer of Nonqualifying Property  3.33
    • E.  Recognizing Gain or Loss in Related-Party Exchanges
      • 1.  IRC §1031(f) Transactions  3.34
      • 2.  Boot in Exchanges of Depreciable Property Between Related Parties  3.35
    • F.  Calculating Recognized Gain or Loss in Multiple Property Exchanges  3.36
      • 1.  Effect of Multiple Property Exchange Rules  3.37
        • a.  Step One: Allocating Property to Exchange Groups  3.38
        • b.  Step Two: Creating Residual Group  3.39
        • c.  Step Three: Offsetting Liabilities  3.40
        • d.  Step Four: Calculating Gain or Loss in Each Group  3.41
      • 2.  Recognizing Gain or Loss in a Residual Group  3.42
    • G.  Reporting Recognized Gain on Installment Method
      • 1.  Availability of Installment Method in Exchange  3.43
      • 2.  Interplay of IRC §§453 and 1031  3.44
        • a.  Calculation of Selling Price  3.44A
        • b.  Calculation of Contract Price  3.44B
        • c.  Calculation of Gross Profit  3.44C
        • d.  Calculation of Gross Profit Ratio  3.44D
        • e.  Calculation When Note Is Received in Like-Kind Exchange  3.44E
        • f.  Approach Under Former Proposed Regulation §1.453–1(f)  3.44F
      • 3.  Coordination of IRC §453 With Deferred Exchanges  3.45
    • H.  Recapture of Depreciation
      • 1.  Generally  3.46
      • 2.  Recapture of Depreciation on IRC §1250 Property  3.47
      • 3.  Limits on IRC §1250 Recapture in IRC §1031 Exchanges  3.48
      • 4.  Alternative Capital Gain Rate Application to IRC §1250 Cost Recovery  3.49
      • 5.  Carryover of Depreciation Recapture on Transfer of IRC §1250 Property  3.50
      • 6.  Recapture of Depreciation on IRC §1245 Property  3.51
      • 7.  Pre-1987 §1245 Real Property  3.52
    • I.  Alternative Minimum Tax  3.53
  • IV.  TAX-PLANNING STRATEGIES
    • A.  Refinancing to Obtain Cash Before, During, or After Exchange  3.54
      • 1.  Preexchange Refinancing  3.55
      • 2.  Postexchange Refinancing  3.56
    • B.  Minimizing Taxable Cash Boot  3.57
    • C.  Receiving Installment Notes  3.58
  • V.  CALCULATING BASIS IN REPLACEMENT PROPERTY
    • A.  General Principles  3.59
      • 1.  Procedure for Calculating Basis in Replacement Property  3.60
      • 2.  Short-Cut Method to Double-Check Calculations of Basis  3.61
      • 3.  Treatment of Transactional Expenses in Calculating Basis  3.62
    • B.  Calculating Basis in Multiple Replacement Properties
      • 1.  Ascertaining Whether Reg §1.1031(j)–1 Applies  3.63
      • 2.  Calculating Basis in Multiple Replacement Properties Under Reg §1.1031(j)–1  3.64
      • 3.  Calculating Basis in Multiple Replacement Properties When Reg §1.1031(j)–1 Does Not Apply  3.65
    • C.  Allocating Basis Between Land and Improvements  3.66
    • D.  Allocating Basis Between New and Old Modified Accelerated Cost Recovery System (MACRS) Categories  3.67
    • E.  Calculating Basis When Exchange Is Bargain Sale  3.68
    • F.  “Unadjusted Basis” for Purposes of IRC §199A  3.68A
  • VI.  HOLDING PERIOD  3.69
  • VII.  EXAMPLES OF CALCULATIONS OF TAXABILITY AND BASIS  3.70
    • A.  Equal Exchange: Parties Neither Receive Nor Give Boot  3.71
    • B.  Party A Receives and Party B Gives Cash Boot  3.72
    • C.  Party B Receives and Party A Gives Mortgage Boot  3.73
    • D.  Party B Receives Cash Boot and Gives Mortgage Boot; Party A Receives Mortgage Boot and Gives Cash Boot  3.74
    • E.  Taxpayer Realizes Loss  3.75
  • VIII.  DEPRECIATION ISSUES  3.76
    • A.  Year of Exchange Depreciation Allowance on Relinquished Property  3.76A
    • B.  Exchanged Basis—Basic Rules  3.76B
      • 1.  Conventions  3.76C
      • 2.  Recovery Periods and Depreciation Methods  3.76D
    • C.  Depreciation Allowance on Replacement Property
      • 1.  Exchanged Basis  3.76E
      • 2.  Excess Basis  3.76F
    • D.  Election Not to Apply the Regulations  3.76G
    • E.  Deferred and Reverse Exchanges
      • 1.  Deferred Exchanges  3.76H
      • 2.  Acquisition Before Disposition: “True” Reverse Exchanges  3.76I
    • F.  Bonus Depreciation  3.76J
  • IX.  REPORTING REQUIREMENTS
    • A.  Reporting Exchange on Taxpayer’s Federal Income Tax Return  3.77
      • 1.  Using IRS Form 8824  3.78
      • 2.  Twenty-Percent Penalty Under IRC §6662  3.79
      • 3.  Using IRS Form 1099-S  3.80
    • B.  Reporting Exchange on Taxpayer’s State Income Tax Return
      • 1.  Generally  3.81
      • 2.  Sale or Exchange of Non-California Property Received in Exchange for California Property  3.81A
    • C.  Complying With Special Reporting and Withholding Requirements When Taxpayer or Seller Is “Foreign” Individual, Entity, Trust, or Estate
      • 1.  Complying With Foreign Investment in Real Property Tax Act (FIRPTA)  3.82
        • a.  Application of FIRPTA  3.83
        • b.  FIRPTA’s Withholding and Reporting Requirements  3.84
        • c.  Exceptions to FIRPTA Withholding Requirements; Withholding Certificates  3.85
      • 2.  Complying With CALFIRPTA  3.86
        • a.  Exceptions to CALFIRPTA Withholding Requirements  3.87
        • b.  Exception for Like-Kind Exchanges  3.88
        • c.  Forms Required by CALFIRPTA  3.89
        • d.  Open Issues: Interplay Between IRC §1031 and Rev & T C §§18661–18677  3.90
    • D.  Filing of Information Return by Person Responsible for Closing Real Estate Transaction  3.91
  • X.  GLOSSARY  3.92

4

Deferred Exchanges

  • I.  INTRODUCTION  4.1
    • A.  “Deferred” or “Delayed Status” Exchanges  4.2
    • B.  Is Exchange Simultaneous or Deferred?  4.3
    • C.  Timing of Deferred Exchanges  4.4
  • II.  HISTORY OF DEFERRED EXCHANGES  4.5
    • A.  Judicial Precedent for Deferred Exchanges
      • 1.  Pre-Starker Cases  4.6
      • 2.  Starker v U.S.  4.7
    • B.  Legislative Response to Starker
      • 1.  IRC §1031(a)(3)  4.8
      • 2.  Rationales for Enacting Time Restrictions on Deferred Exchanges  4.9
        • a.  Unrealized Profit  4.10
        • b.  Administrative Burden of Valuing Traded Property  4.11
        • c.  Other Administrative Burdens  4.12
        • d.  Possible Avoidance of Recognition of Gain  4.13
        • e.  Identification Requirements  4.14
      • 3.  Issues Left Unresolved by IRC §1031(a)(3)  4.15
  • III.  IDENTIFICATION AND RECEIPT REQUIREMENTS
    • A.  Timing of Identification and Receipt
      • 1.  Generally  4.16
      • 2.  Effect of Relinquishing Multiple Properties in Same Deferred Exchange  4.17
      • 3.  Extensions of Time to Identify or Receive Replacement Property
        • a.  General Rule: No Extensions  4.18
        • b.  Federally Declared Disasters (IRC §7508A)  4.18A
          • (1)  When Postponement Available  4.18B
          • (2)  Periods That May Be Extended  4.18C
          • (3)  Requirements for Extension  4.18D
        • c.  Transfer of Tobacco Quotas [Deleted]  4.18E
    • B.  Identification of Replacement Property
      • 1.  Significance of IRC §1031(a)(3)(A)  4.19
      • 2.  Methods of Identification  4.20
      • 3.  Description of Replacement Property  4.21
      • 4.  Designation of Multiple and Alternative Replacement Properties  4.22
        • a.  Three-Property Rule  4.23
        • b.  200-Percent Rule  4.24
        • c.  95-Percent Rule  4.25
      • 5.  Property Received During Identification Period  4.26
      • 6.  Incidental Property  4.27
      • 7.  Revoking Identification  4.28
    • C.  Receipt of Identified Replacement Property  4.29
    • D.  Property Under Construction  4.30
      • 1.  Identification  4.31
      • 2.  Receipt  4.32
    • E.  Extending Time Limits of IRC §1031(a)(3)
      • 1.  Lease With Option to Purchase  4.33
      • 2.  Avoiding Treatment as Same Exchange  4.34
      • 3.  Build-to-Suit Transactions  4.35
  • IV.  CONSTRUCTIVE RECEIPT AND REGULATIONS’ SAFE HARBORS
    • A.  Doctrine of Constructive Receipt  4.36
    • B.  Actual or Constructive Receipt Outside Regulations’ Safe Harbors
      • 1.  General Principles  4.37
      • 2.  Deferred Exchange Structures and the Problem of Constructive Receipt  4.38
        • a.  Cooperating Buyer Approach  4.39
        • b.  Cooperating Intermediary Approach  4.40
          • (1)  Escrow and Trust Arrangements  4.41
          • (2)  Independence of Intermediary  4.42
      • 3.  Constructive Receipt in Other Contexts  4.43
    • C.  Regulations’ Safe Harbors for Avoiding Actual or Constructive Receipt  4.44
      • 1.  Security and Guaranty Arrangements  4.45
        • a.  Mortgage or Deed of Trust Against Relinquished Property  4.46
        • b.  Third Party Guaranty  4.47
        • c.  Standby Letter of Credit  4.48
      • 2.  Qualified Escrow Accounts and Qualified Trusts  4.49
        • a.  Definitions  4.50
        • b.  Limitations  4.51
        • c.  Use of Trusts  4.52
      • 3.  Qualified Intermediaries
        • a.  Requirements for Application of Safe Harbor  4.53
          • (1)  QI Requirements  4.53A
          • (2)  Treatment of QI and Exchange Transaction  4.53B
          • (3)  Satisfying QI Safe Harbor  4.53C
          • (4)  Termination of QI Safe Harbor  4.53D
        • b.  Effect of Satisfaction of Safe Harbor  4.54
        • c.  Receipt of Money or Other Property by Taxpayer  4.55
        • d.  Assignment of Rights to Intermediary  4.56
        • e.  Taxation of Qualified Intermediaries  4.57
          • (1)  Basic Source of Qualified Intermediary Income  4.57A
          • (2)  Treatment of Deferred Exchange Funds Held by Qualified Intermediary: Deemed Loan  4.57B
            • (a)  Test of Forgone Interest  4.57C
            • (b)  Exceptions to Deemed Loan Rules  4.57D
      • 4.  Interest and Growth Factors
        • a.  Taxpayer May Earn Interest  4.58
        • b.  When Taxpayer May Receive Interest  4.59
        • c.  Income Tax Treatment  4.60
        • d.  Minimizing Taxpayer’s Taxable Interest Income  4.61
        • e.  Penalties  4.62
      • 5.  Additional Restrictions on Safe Harbors  4.63
      • 6.  Prorations and Closing Costs Are Disregarded in Applying Safe Harbors  4.64
      • 7.  Disqualified Persons  4.65
        • a.  Who Is Agent of Taxpayer?  4.66
        • b.  Attorneys as Owners of Corporate Intermediaries  4.67
        • c.  Qualified Intermediaries Owned by Financial Institutions  4.67A
      • 8.  Joint Signature Accounts  4.68
      • 9.  State Regulation of Qualified Intermediaries  4.68A
      • 10.  Effective Date  4.69
    • D.  Coordination of IRC §453 With Deferred Exchanges
      • 1.  Boot May Be Reported on Installment Method  4.70
      • 2.  Qualification for Installment Treatment: Bona Fide Intent to Exchange  4.71
      • 3.  Limitations  4.72
      • 4.  Installment Notes Received in Deferred Exchanges  4.73
  • V.  PERSONAL PROPERTY EXCHANGE PROGRAMS (PRE–Tax Cuts and Jobs Act)
    • A.  Generally  4.73A
    • B.  Ongoing Tangible Personal Property Exchange Programs
      • 1.  Overview  4.73B
      • 2.  Rev Proc 2003–39: Safe Harbors for LKE Programs  4.73C
      • 3.  Multiple Ongoing LKE Programs  4.73D
        • a.  Identifying Replacement Properties; Netting of Funds  4.73E
        • b.  Flow of Funds and Constructive Receipt  4.73F
        • c.  Taxpayer as Lender to Purchaser of Relinquished Property; Taxpayer as Lessor of Purchased Relinquished Property  4.73G
        • d.  Status of Qualified Intermediary  4.73H
        • e.  Assignment Safe Harbor  4.73I
      • 4.  Implications of Rev Proc 2003–39 for Exchanges Generally  4.73J
  • VI.  REAL PROPERTY EXCHANGE AGREEMENT  4.74
    • A.  Form: Title and Introductory Paragraph  4.75
    • B.  Form: Recitals  4.76
    • C.  Form: Definitions  4.77
    • D.  Form: Exchange of Properties  4.78
    • E.  Form: Terms for Acquisition of Relinquished Property  4.79
    • F.  Form: Relinquished Property Closing  4.80
    • G.  Form: Conditions of Title to Exchanger’s Interest in Relinquished Property  4.81
    • H.  Form: Federal and State Income Tax Withholding  4.82
    • I.  Acquisition of Replacement Property
      • 1.  Form: Identification of Specific Replacement Property  4.83
      • 2.  Form: Identification of Other Replacement Property  4.84
      • 3.  Form: Contracts to Acquire Replacement Property  4.85
      • 4.  Form: Acquisition and Exchange  4.86
      • 5.  Form: Effect of Identified Replacement Property Remaining Unacquired  4.87
      • 6.  Form: QI’s Financial Obligation to Acquire Replacement Property  4.88
      • 7.  Form: Number of Properties to Be Acquired May Be Limited  4.89
    • J.  Form: Termination of Exchange  4.90
    • K.  Form: Indemnities by Exchanger  4.91
    • L.  Form: Execution of Documents; Further Documentation  4.92
    • M.  Form: Conflict With Prior Agreements  4.93
    • N.  Form: Attorney Fees  4.94
    • O.  Form: Survival  4.95
    • P.  Form: Time  4.96
    • Q.  Form: Assignment  4.97
    • R.  Form: Notices  4.98
    • S.  Form: No Agency  4.99
    • T.  Form: No Warranty on Tax Consequences  4.100
    • U.  Form: Governing Law  4.101
    • V.  Form: Arbitration of Disputes  4.102
    • W.  Form: Signatures  4.103
  • VII.  EXHIBITS TO REAL PROPERTY EXCHANGE AGREEMENT
    • A.  Form: Exhibit A; Relinquished Property Description  4.104
    • B.  Form: Exhibit B-1; Replacement Property Identification Form  4.105
    • C.  Form: Exhibit B-2; Replacement Property Identification Form (200 Percent of Value)  4.106
  • VIII.  ANCILLARY DOCUMENTS
    • A.  Form: Letter to Client  4.107
    • B.  Form: Phase 1 Escrow Letter  4.108
    • C.  Form: Notice of Contract Assignment  4.109
    • D.  Form: Replacement Property Contract Assignment Agreement  4.110
    • E.  Form: Phase 2 Escrow Letter  4.111
  • IX.  GLOSSARY  4.112

5

“Reverse” and Construction Exchanges

  • I.  INTRODUCTION AND BACKGROUND
    • A.  Rationale of Reverse Exchanges  5.1
    • B.  Inapplicability of IRC §1031(a)(3)  5.2
    • C.  Limited Authority Supports “True” Reverse Exchanges  5.3
      • 1.  Tax Court and Other Cases  5.4
      • 2.  1992 ABA Proposal [Deleted]  5.5
      • 3.  IRS Letter Rulings  5.6
    • D.  Parking Structures as Alternatives to True Reverse Exchanges  5.7
      • 1.  Forms of Parking Transactions
        • a.  Exchange Last Parking Arrangements  5.8
        • b.  Exchange First Parking Arrangements  5.9
        • c.  Advantages and Disadvantages of Exchange Last Versus Exchange First Transactions  5.10
      • 2.  Authority Relating to Exchange Parking Arrangements  5.11
        • a.  Cases Upholding Exchange Treatment  5.12
        • b.  The DeCleene Decision  5.13
        • c.  The Bartell Decision  5.13A
        • d.  Bankruptcy Cases  5.14
        • e.  IRS Letter Ruling 200039005  5.15
  • II.  SAFE HARBOR FOR REVERSE EXCHANGES (REV PROC 2000–37)
    • A.  Introduction  5.16
    • B.  Requirements
      • 1.  Qualified Exchange Accommodation Arrangements  5.17
      • 2.  Role of Exchange Accommodation Titleholder  5.18
      • 3.  Qualified Indicia of Ownership (QIO) Test  5.19
      • 4.  Identification and Replacement Periods  5.20
      • 5.  Arrangements Permitting Taxpayer Control of Parked Property  5.21
      • 6.  Tax Reporting Requirements  5.22
        • a.  Balance Sheet Issues  5.23
        • b.  Income and Expense Items  5.24
      • 7.  Effect of Rev Proc 2000–37 on Non-Safe-Harbor Transactions  5.25
      • 8.  Effective Date of Rev Proc 2000–37  5.26
  • III.  SPECIAL ISSUES IN NON-SAFE-HARBOR REVERSE EXCHANGES
    • A.  Introduction  5.27
    • B.  Significance of Relevant Authorities
      • 1.  IRS Letter Ruling 200111025  5.28
        • a.  Facts  5.29
        • b.  Structure of the Transaction  5.30
        • c.  IRS Analysis  5.31
        • d.  IRS Rejects Approach of Letter Ruling 200111025 for Non-Safe-Harbor Transactions  5.32
      • 2.  Ongoing Significance of DeCleene  5.33
      • 3.  Remaining Questions  5.34
    • C.  Construction and Build-to-Suit Reverse Exchange Structures  5.35
      • 1.  Construction by Qualified Intermediary  5.36
      • 2.  Agency Issue Outside QI or QEAA Safe Harbor  5.37
      • 3.  Risk of Loss Outside QI or QEAA Safe Harbor  5.38
      • 4.  Related Party as Contractor  5.39
      • 5.  Using Leases to Build Improvements on Land Owned by Taxpayer or Related Party  5.39A
  • IV.  FORM: INTRODUCTORY LETTER TO CLIENT REGARDING SAFE HARBOR REVERSE EXCHANGE  5.40
  • V.  REAL ESTATE ACQUISITION AND QUALIFIED EXCHANGE ACCOMMODATION ARRANGEMENT  5.41
    • A.  Form: Title and Introductory Paragraph  5.42
    • B.  Form: Background Facts  5.43
    • C.  Form: Definitions  5.44
    • D.  Acquisition of Replacement Property; Financing; Lease
      • 1.  Form: Assignment of Replacement Property Purchase Agreement  5.45
      • 2.  Form: Financing; Lease  5.46
    • E.  Exchange Cooperation
      • 1.  Form: Identification of Relinquished Property  5.47
      • 2.  Form: Assignment to QI  5.48
      • 3.  Form: Transfer of Replacement Property  5.49
      • 4.  Form: Additional Delivery; Liens  5.50
      • 5.  Form: Representations and Warranties; Title  5.51
      • 6.  Form: Termination of Exchange Cooperation Requirement  5.52
    • F.  Form: Exchanger’s Purchase Option  5.53
    • G.  Form: EAT Sale Option  5.54
    • H.  Form: EAT’s Failure to Complete Exchange  5.55
    • I.  Form: Representations, Warranties, and Covenants of EAT  5.56
    • J.  Form: Representations and Warranties of Exchanger  5.57
    • K.  Form: Survival  5.58
    • L.  Form: Remedies of Exchanger  5.59
    • M.  Form: Environmental Release and Indemnity  5.60
    • N.  Form: Miscellaneous  5.61
    • O.  Form: Signatures  5.62
    • P.  List of Exhibits  5.63
  • VI.  ANCILLARY FORMS
    • A.  Form: Escrow Instructions: Acquisition by EAT  5.64
    • B.  Form: Phase I Closing Letter  5.65
    • C.  Form: Escrow Instructions—Transfer From EAT to Exchanger  5.66
  • VII.  GLOSSARY  5.67

6

Planning and Implementing the Real Estate Exchange

  • I.  INTRODUCTION  6.1
  • II.  IMPLEMENTING THE SAFE-HARBOR DEFERRED EXCHANGE  6.2
    • A.  Purchaser’s Cooperation With Exchange
      • 1.  Purchaser’s Role in Exchange  6.3
      • 2.  Form: Purchaser’s Agreement to Cooperate  6.4
    • B.  Engaging the Qualified Intermediary  6.5
    • C.  Closing Sale of Relinquished Property
      • 1.  Assignment of Contract to Qualified Intermediary; Notice to Purchaser  6.6
      • 2.  Separate Assignment of Contract to Qualified Intermediary; Consent of Purchaser  6.7
      • 3.  Form: Relinquished Property Contract Assignment Agreement  6.8
      • 4.  Relinquished Property Sale Contract Deposits  6.8A
      • 5.  Closing Mechanics  6.9
    • D.  Locating, Identifying, and Contracting for Replacement Property  6.10
      • 1.  Deposits Toward Purchase of Replacement Property  6.11
      • 2.  Seller’s Cooperation With Exchange  6.12
      • 3.  Form: Seller’s Agreement to Cooperate  6.13
    • E.  Closing Purchase of Replacement Property  6.14
      • 1.  Overfunding Concerns  6.15
      • 2.  Transfer of Title to Taxpayer  6.16
      • 3.  Disbursement of Remaining QI Funds  6.17
  • III.  IMPLEMENTING REVERSE EXCHANGE PARKING TRANSACTION UNDER REV PROC 2000–37  6.18
    • A.  Negotiating Acquisition of Replacement Property  6.19
    • B.  Engaging the Exchange Accommodation Titleholder (EAT) to Acquire Replacement Property  6.20
    • C.  Arranging Financing for Exchange Accommodation Titleholder (EAT) to Acquire Replacement Property in Exchange Last Transaction  6.21
      • 1.  Structuring Principal and Interest Payments  6.22
      • 2.  Example of Exchange Last Reverse Exchange Financing  6.23
    • D.  Financing Issues in Exchange First Transactions  6.24
      • 1.  Debt Structure  6.25
      • 2.  “True-Up” Arrangements to Reflect Value Deviations  6.26
      • 3.  Example of Exchange First Reverse Exchange Financing  6.27
    • E.  Managing Replacement Property During EAT’s Ownership  6.28
      • 1.  Self-Insurance  6.29
      • 2.  Amortizing Loans  6.30
    • F.  Closing Out the Qualified Exchange Accommodation Arrangement (QEAA)
      • 1.  Exchange Last  6.31
      • 2.  Exchange First  6.32
  • IV.  GLOSSARY  6.33

7

Special Issues in Exchanges Involving Partnerships and Corporations

  • I.  SCOPE OF CHAPTER  7.1
  • II.  EXCHANGES BY PARTNERSHIPS  7.2
    • A.  Effect of Built-in Gain or Loss  7.3
      • 1.  Receipt of Boot in Partially Deferred Exchange  7.3A
      • 2.  Lock-in Provisions  7.3B
    • B.  Effect of Mortgage Boot Receipt  7.4
    • C.  At-Risk Rules  7.5
    • D.  “Tax-Exempt Use” Property  7.5A
  • III.  EXCHANGES BY PARTNERSHIPS WHEN PARTNERS WISH TO SEPARATE
    • A.  Overview  7.6
    • B.  Possible Approaches
      • 1.  All Partners Wish to Separate  7.7
      • 2.  Some Partners Wish to Separate  7.8
    • C.  Major Issues in Partnership Separation Transactions
      • 1.  Step-Transaction and Substance-Over-Form Doctrines in Preexchange Property Distributions
        • a.  Concepts  7.9
        • b.  Application  7.10
          • (1)  Step-Transaction Doctrine Applied  7.10A
          • (2)  Substance-Over-Form Doctrine Applied  7.10B
      • 2.  Attribution of Qualified Use When Property Is Transferred Before or After Exchange  7.11
        • a.  Making Case That Property Satisfies Qualified Use Requirement  7.11A
        • b.  Current IRS Position  7.11B
      • 3.  Tenancy-in-Common Arrangements as Reconstituted Partnerships
        • a.  Factors Affecting Characterization as Partnership  7.12
        • b.  IRC §761(a) Election Out of Subchapter K  7.13
          • (1)  Opt Out Requirements  7.13A
          • (2)  Making the Election  7.13B
      • 4.  Special Issues Relating to Particular Transaction Formats
        • a.  Special Allocation of Gain to Partner Taking Cash  7.14
          • (1)  Value Equals Basis Rule  7.15
          • (2)  Substantial Economic Effect  7.16
          • (3)  Allocation of Boot to Departing Partner  7.17
        • b.  Installment Note Distribution Solution  7.18
        • c.  Swap and Drop Issues  7.19
        • d.  Exchanges Followed by Special Tracking Allocations  7.20
        • e.  Partnership Divisions  7.20A
  • IV.  EXCHANGES INVOLVING ACQUISITION OF PROPERTY BY MULTIPLE OWNERS
    • A.  Postexchange Partnership or Corporation Formations  7.21
    • B.  The Rise (and Fall) of Tenancy-in-Common Programs  7.22
    • C.  Tenancy-in-Common Interests as Securities  7.23
    • D.  Tenancy-in-Common Classification Issues  7.24
      • 1.  Ownership Versus Business Activities
        • a.  Generally  7.25
        • b.  Single-Tenant Net Lease Arrangements  7.26
        • c.  Master Lease Arrangements  7.27
      • 2.  Partnership Indicia  7.28
    • E.  IRS Guidance
      • 1.  Introduction  7.29
      • 2.  Framework of TIC Arrangements Under Rev Proc 2002–22
        • a.  Definitions  7.30
        • b.  Specific Criteria  7.31
        • c.  Formation Issues  7.32
        • d.  Revenues, Expenses, Debt, and Cash Flow Allocations  7.33
        • e.  Property Management, Operations, and Decisions  7.34
        • f.  Co-Owner Exit Strategies  7.35
      • 3.  Required Information  7.36
      • 4.  Practical Issues Arising in Connection With Rev Proc 2002–22 Framework
        • a.  Drop and Swap Transactions  7.37
        • b.  Multiple Properties  7.38
        • c.  Unanimous Co-Ownership Decisions  7.39
        • d.  Debt Allocation  7.40
        • e.  Capital Calls  7.41
        • f.  Scope of Co-Owner Activity  7.42
        • g.  Sponsor Exit Strategies  7.43
      • 5.  Delaware Statutory Trusts: Rev Rul 2004–86  7.43A
  • V.  ISSUES UNIQUE TO CORPORATIONS
    • A.  Consolidated Groups  7.44
    • B.  Reorganizations  7.45
    • C.  Pre- and Postexchange Asset Movement Between Members of Consolidated Group  7.45A
    • D.  Real Estate Investment Trusts  7.46
    • E.  Effect of Exchanges on Corporate Earnings and Profits  7.47
    • F.  Effect of Exchanges on Controlled Foreign Corporation Income  7.48
  • VI.  GLOSSARY  7.49

REAL PROPERTY EXCHANGES

(3d Edition)

June 2018

TABLE OF CONTENTS

 

File Name

Book Section

Title

CH04

Chapter 4

Deferred Exchanges

04-075

§§4.75–4.103

Title and Introductory Paragraph

 

§4.76

Recitals

 

§4.77

Definitions

 

§4.78

Exchange of Properties

 

§4.79

Terms for Acquisition of Relinquished Property

 

§4.80

Relinquished Property Closing

 

§4.81

Conditions of Title to Exchanger’s Interest in Relinquished Property

 

§4.82

Federal and State Income Tax Withholding

 

§4.83

Identification of Specific Replacement Property

 

§4.84

Identification of Other Replacement Property

 

§4.85

Contracts to Acquire Replacement Property

 

§4.86

Acquisition and Exchange

 

§4.87

Effect of Identified Replacement Property Remaining Unacquired

 

§4.88

QI’s Financial Obligation to Acquire Replacement
Property

 

§4.89

Number of Properties to Be Acquired May Be Limited

 

§4.90

Termination of Exchange

 

§4.91

Indemnities by Exchanger

 

§4.92

Execution of Documents; Further Documentation

 

§4.93

Conflict With Prior Agreements

 

§4.94

Attorney Fees

 

§4.95

Survival

 

§4.96

Time

 

§4.97

Assignment

 

§4.98

Notices

 

§4.99

No Agency

 

§4.100

No Warranty on Tax Consequences

 

§4.101

Governing Law

 

§4.102

Arbitration of Disputes

 

§4.103

Signatures

04-104

§4.104

Exhibit A; Relinquished Property Description

04-105

§4.105

Exhibit B-1; Replacement Property Identification Form

04-106

§4.106

Exhibit B-2; Replacement Property Identification Form
(200 Percent of Value)

04-107

§4.107

Letter to Client

04-108

§4.108

Phase 1 Escrow Letter

04-109

§4.109

Notice of Contract Assignment

04-110

§4.110

Replacement Property Contract Assignment Agreement

04-111

§4.111

Phase 2 Escrow Letter

CH05

Chapter 5

“Reverse” and Construction Exchanges

05-040

§5.40

Form: Introductory Letter to Client Regarding Safe Harbor Reverse Exchange

05-042

§§5.42–5.62

Title and Introductory Paragraph

 

§5.43

Background Facts

 

§5.44

Definitions

 

§5.45

Assignment of Replacement Property Purchase Agreement

 

§5.46

Financing; Lease

 

§5.47

Identification of Relinquished Property

 

§5.48

Assignment to QI

 

§5.49

Transfer of Replacement Property

 

§5.50

Additional Delivery; Liens

 

§5.51

Representations and Warranties; Title

 

§5.52

Termination of Exchange Cooperation Requirement

 

§5.53

Exchanger’s Purchase Option

 

§5.54

EAT Sale Option

 

§5.55

EAT’s Failure to Complete Exchange

 

§5.56

Representations, Warranties, and Covenants of EAT

 

§5.57

Representations and Warranties of Exchanger

 

§5.58

Survival

 

§5.59

Remedies of Exchanger

 

§5.60

Environmental Release and Indemnity

 

§5.61

Miscellaneous

 

§5.62

Signatures

05-064

§5.64

Escrow Instructions: Acquisition by EAT

05-065

§5.65

Phase I Closing Letter

05-066

§5.66

Escrow Instructions—Transfer From EAT to Exchanger

CH06

Chapter 6

Planning and Implementing the Real Estate Exchange

06-004

§6.4

Purchaser’s Agreement to Cooperate

06-008

§6.8

Relinquished Property Contract Assignment Agreement

06-013

§6.13

Seller’s Agreement to Cooperate

 

Selected Developments

April 2020 Update

Book Enhancements

  • The text of this book has been revised throughout to bring it up to date with the latest legislation, case law, and exchange practice. In addition, the book has been renumbered in its entirety, as many sections have been added, deleted, or moved.

  • In particular, this book contains enhanced discussions of deferred sales trusts (see §§1.27, 3.68); installment notes received in a failed exchange (see §§3.111, 4.88, 7.27); Estate of Bartell v Commissioner (2016) 147 TC 140 (see §§5.13, 5.31); Appeal of Ahlers (SBE 2005) CCH Cal Tax Rep 403–932, 2005 Cal Tax Lexis 360 (see §§7.26, 7.28); and Delaware statutory trusts (see §7.55).

Cases and Legislation

  • The Internal Revenue Service is in the process of issuing new regulations to address the definition of “real property” for Section 1031 purposes, expected sometime in May or June 2020. Currently there is no indication whether the regulations will be temporary or permanent or whether there will be a comment period. See §§1.12, 2.4.

  • As of January 10, 2019, the State of California has partially conformed to the federal tax law changes enacted under the Tax Cuts and Jobs Act of 2017 (Pub L 115–97, 131 Stat 2054). California chose to conform to the IRC §1031 changes promulgated under the Act, but retained the prior rules for certain individual taxpayers with incomes below specified thresholds. The effect of this partial conformity are discussed throughout this book, and specifically in §§1.4, 1.16, 2.3.

  • On April 17, 2019, the IRS released final regulations for IRC §199A(h)(2), which clarify, among other things, how an unadjusted basis immediately after acquisition of qualified property acquired in like-kind exchanges will be calculated. See §§1.38, 3.79.

  • Denise Celeste McMillan, TC Memo 2019–108 (in reviewing whether taxpayer was engaged in an “active trade or business,” noted that subject case involved taxpayer’s third appearance in tax court based on three separate tax years and that each case was dependent on the facts for that particular tax year). See §2.29.

  • The Ninth Circuit Court of Appeals has confirmed the decision in Malulani Group Ltd. v Commissioner TC Memo 2016–209 (rejecting taxpayer argument that exchange involving replacement property from related party should qualify for tax deferral because no other suitable replacement property was available). See Malulani Group, Ltd. v Commissioner (2019) 771 Fed Appx 800 (unpublished opinion), discussed in §§2.115–2.116.

  • On September 24, 2019, the IRS release final regulations for the additional first year depreciation deduction under IRC 168(k). See §3.97.

  • On September 24, 2019, the FTB announced that it will impose failure to withhold penalties against any qualified intermediary that it believes is actively participating in failed like-kind exchanges in which boot or proceeds are converted into an installment note or similar arrangement in order to qualify for tax deferral under IRC §1031. See §§3.111, 4.88.

  • Appeal of Sharon Mitchell (OTA, Aug. 2, 2018, No. 18011715) (rejecting analysis of Commissioner v Court Holding Co. (1945) 324 US 331, 334, 65 S Ct 707 in holding that taxpayer validly established a deferred exchange when her partnership distributed the partner’s interests in real property for separate tenant-in-common interests and taxpayer later exchanged that interest for replacement property). The FTB’s appeal of this decision was denied in Appeal of Sharon Mitchell (OTA, Jan. 28, 2020, No. 18011715). See §7.16.

  • Appeal of Peter Pau and Susanna Pau (OTA, May 7, 2019, No. 18011375) 2019 WL 2512379 (applying analysis of Court Holding to deny taxpayers deferred status for two transactions in which two partnerships distributed real property to them as co-ownership interests and which the taxpayers subsequently exchanged for replacement property). See §7.16.

About the Authors

LOUIS S. WELLER, Of Counsel at Bryan Cave LLP and Managing Director at Stewart Institutional Exchange Services, LLC. His professional practice emphasizes tax planning on behalf of corporations, REITs, investors, and developers for real estate transactions. Before taking his present position, Mr. Weller was a principal at Deloitte Tax LLP, where he served as Director of the Real Estate Transaction Planning practice. He has extensive experience designing and implementing strategies for business start-ups, limited liability companies, partnership and joint venture formations, real estate acquisitions, transfers, exchanges, leases, financing, work-outs, capital raising through placement of partnership interests and stock, as well as counseling clients on achieving business and personal tax planning objectives. A frequent speaker and author in the fields of tax, business law, and real estate, Mr. Weller has lectured at programs sponsored by California Continuing Education of the Bar, the American Bar Association, the State Bars of California, Michigan, Oregon, and Texas, the Bar Association of San Francisco, Golden Gate University, the California and Texas Societies of Certified Public Accountants, University of Southern California, New York University, Georgetown University Law Center, Mid-America Tax Institute, Southern Federal Tax Institute, Yellowstone Tax Institute, National Real Estate Development Center, and numerous private industry groups. Mr. Weller’s publications include chapters on real estate tax issues published in the multivolume set California Real Estate Law and Practice, articles published in the Journal of Real Estate Taxation, Real Estate Forum, Real Estate Portfolio, California Real Estate Law Reporter, Practical Tax Lawyer, Real Estate Tax Digest, Compleat Lawyer, and others. He is a chief supervisory editor of the Real Estate Tax Digest and a member of the Advisory Board of the CCH Journal of Passthrough Entities. Mr. Weller is past Chair of the Real Estate Committee, American Bar Association Tax Section and of that committee’s Subcommittee on Like-Kind Realty Exchanges. He has served as a member of the State Bar of California Taxation Section Executive Committee, and past Chair of the Taxation Section, Bar Association of San Francisco and Chair of the Federal Taxation of Real Estate Transactions Committee, American Bar Association Real Property, Probate and Trust Section. While serving on the Partnerships Committee of the State Bar of California Business Law Section, he participated in drafting California’s revised limited partnership law. Mr. Weller is an elected Fellow of the American College of Tax Counsel and is active in various professional and civic organizations. Mr. Weller received a B.A. from Yale University and concurrent J.D. and Masters in Public Policy degrees from the University of California, Berkeley.

CECILY A. DRUCKER is a principal in the San Francisco law firm of Drucker + Associates, where she specializes in tax-deferred exchanges, real estate transactions and financing, and business transactions. She is the co-founder of, and a consultant to, 1031 Strategies & Services, Inc., which provides comprehensive planning and implementation of IRC §1031 exchanges and reverse exchange transactions. She also serves as an expert witness in disputes in which such transactions are at issue. Ms. Drucker has frequently lectured on tax-deferred exchanges and on reverse exchanges for CEB, the State Bar of California Real Property Law Section, numerous real estate brokerage organizations, banks, and other financial services institutions and accounting firms. She is the author of the seminal article on reverse exchanges, Reverse Tax-Deferred Exchanges (1989 Cal Real Property Law Rptr, Vol XII, No. 8), and has served on the Executive Committee of the State Bar Real Property Law Section. Ms. Drucker graduated with an A.B. from the University of Rochester in 1966 and and has served two terms on the University’s Trustees Council of the College. She received her J.D. in 1974 from the University of California, Hastings College of the Law.

About the 2018 Update Author

LOUIS S. WELLER, update author, leads the real estate, transactions and tax practice at Weller Partners LLP, Sausalito. He previously served as National Director of Real Estate Transaction Planning and National Director, Like Kind Exchange Services at Deloitte Tax LLP and was formerly Of Counsel to the national law firm, Bryan Cave LLP. For a more complete biography, see About the Authors.

OnLAW System Requirements:
Desktop: Windows XP, 7 or 8, Mac OS 10.8
Mobile: iOS6, iOS7, Android 4.2
Firefox, Chrome, IE and Safari browsers

Note: OnLAW may work with some devices running older versions of these Operating Systems or Windows RT; however, functionality is not guaranteed.

Please see FAQs for more details.
Products specifications
PRODUCT GROUP Publication
PRACTICE AREA Real Property
Products specifications
PRODUCT GROUP Publication
PRACTICE AREA Real Property