The IRS today publicly released a private letter ruling* that concludes that cellular towers and other items used by the taxpayer in its business qualify for like-kind exchange treatment under section 1031 when exchanged by the taxpayer for cable telecommunication signal distribution property. PLR 201706009 (released February 10, 2017, and dated November 14, 2016)
Read PLR 201706009 [PDF 52 KB]
*Private letter rulings are taxpayer-specific rulings furnished by the IRS National Office in response to requests made by taxpayers and can only be relied upon by the taxpayer to whom issued. It is important to note that, pursuant to section 6110(k)(3), such items cannot be used or cited as precedent. Nonetheless, such rulings can provide useful information about how the IRS may view certain issues.
The taxpayer—a communications services provider that offers communications infrastructure to its customers—owns either fee simple or long-term leasehold interests in multiple wireless communication tower sites across the nation. Each “tower” site consists of:
All of the taxpayer’s towers are permanently affixed to the land or would be extensively damaged if removed.
The taxpayer is contemplating exchanging its towers for fiber-optic and copper cables installed either above or below ground and various other associated properties, including:
These items are collectively referred to as “cable distribution systems.” The cable distribution systems are permanently affixed to the land or are intended never to be removed until the end of their respective useful lives.
The IRS ruled that the towers and other items used by the taxpayer in its business qualify for like-kind exchange treatment under section 1031 when exchanged by the taxpayer for the cable distribution systems.
After describing the law and applicable judicial decisions, the IRS noted that state law property classifications are not the sole basis for determining whether the towers and the cable distribution systems are like-kind property for purposes of section 1031.
The IRS first explained that the towers and the cable distribution systems transmit or support the transmission of telecommunication signals across distances. The IRS observed that neither the towers nor the cable distribution systems are used for other activities. In addition, the towers and the cable distribution systems are, or are intended to be, permanently affixed to land. The IRS found that under these facts, the taxpayer’s towers and the cable distribution systems are like-kind property for purposes of section 1031.
The IRS concluded:
The IRS stated that this ruling applies only to the towers and the cable distribution systems being transferred and received by the taxpayer as relinquished or replacement property, respectively, in the exchange that are affixed or embedded in real property held in fee simple or similar interest or under a long-term lease, easement, right of way or similar long-term right of use arrangement, in each case having a duration of 30 years or more including optional renewal periods exercisable by the tenant or right of use holder.
For more information, contact a tax professional with KPMG’s Washington National Tax:
Deborah A. Fields | + 1 (202) 533 4580 | email@example.com
Holly Belanger | +1 (407) 656 4105 | firstname.lastname@example.org
© 2018 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.