Academic journal article Journal of Accountancy

Deferred Like-Kind Exchanges

Academic journal article Journal of Accountancy

Deferred Like-Kind Exchanges

Article excerpt

If a taxpayer wants to exchange business or investment property tax-free under the IRC section 1031 like-kind exchange rules, when must he or she receive the replacement property? Section 1031 establishes two conditions a taxpayer must meet to qualify a transaction as a deferred like-kind exchange:

1. The replacement property must be identified within 45 days.

2. The taxpayer must receive the replacement property by the earlier of the due date of his or her tax return (including extensions) or 180 days after the transfer.

Orville Christensen owned business property which he transferred to a facilitator (someone who is paid to arrange a like-kind exchange) on December 22, 1988, as the first step in a tax-free, deferred like-kind exchange. Christensen identified the replacement properties on February 3, 1989. He received those properties from the facilitator between April 25 and June 20, 1989. While Christensen met the first condition for a section 1031 exchange, he and the IRS disagreed over whether he met the second. He appealed the IRS decision.

Result: For the IRS. The Ninth Circuit Court of Appeals rejected the taxpayer's claim that, because of the availability of an automatic extension to file his tax return, the due date should include the extension period even if the taxpayer did not request an extension. According to the court, the IRC is clear. It says the property must be received no later than the due date of a return, including extensions. …

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