Tag Archives: qualified intermediary

Over the past three decades, Congress has enacted various Code provisions and modified existing provisions in an attempt to impede taxpayers’ ability to reduce income tax liability when engaging in real property transactions. The Section 1031 “like-kind” exchange is a powerful tax-deferral technique that has, for the most part, escaped rigorous Congressional scrutiny. The statute permits a taxpayer to relinquish property (often real property) held for “productive use in a trade or business” or for “investment” and exchange it for “like kind” replacement property, without recognizing gain or loss. A cash sale of property followed by a cash purchase of like kind property will not constitute a like kind exchange. Halpern v. U.S., 286 F.Supp. 255 (ND Ga. 1968); PLR 7918018. To constitute an “exchange” within the meaning of the statute, the transaction must be a “reciprocal transfer of property, as distinguished from a transfer of property for a money consideration only.” Regs. § 1.1002-1(d). The rationale for nonrecognition in this circumstance stems from Congress’ view that tax should not be imposed on realized gains where the investment continues in nearly identical form. Continue reading →