Eighth Circuit: Like-kind exchange treatment denied

Eighth Circuit: Like-kind exchange treatment denied

The U.S. Court of Appeals for the Eighth Circuit affirmed a decision of a federal district court, finding that a taxpayer had improperly claimed "nonrecognition treatment" of gains from certain property exchanges involving a related party.

Related content

The case is: North Central Rental & Leasing v. United States, No. 13-3411 (8th Cir. March 2, 2015)


Read the Eighth Circuit’s decision [PDF 41 KB]


Under the taxpayer’s like-kind exchange program, the taxpayer purchased its replacement property from a related party. The replacement property was equipment acquired by the related party from the manufacturer for purposes of transferring such property to the taxpayer. The related party had favorable financing terms with the manufacturer for the replacement property. Thus, under this program, the related party could use the sales proceeds it received for “essentially any business purposes it wanted”—such as paying bills or payroll.

In other words, as the Eighth Circuit found, the related party essentially received an up-to-six-month, interest-free loan from each exchange. The appeals court, thus, concluded that the program was structured to avoid the related-party rules of section 1031(f) and that, under section 1031(f)(4), the taxpayer could not defer its gain realized.

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Request for proposal



KPMG's new digital platform

KPMG's new digital platform