The IRS has released an Action on Decision (AOD) announcing nonacquiescence to an August 2016 opinion of the U.S. Tax Court, in which the court held that a property “reverse exchange” qualified for section 1031.
In Estate of Bartell v. Commissioner, 147 T.C. 140 (August 10, 2016), the transaction at issue was a “reverse exchange” in which improvements were constructed on the replacement property while the property was held by a third-party exchange facilitator. The transaction occurred before the issuance of Rev. Proc. 2000-37 (the reverse exchange safe harbor), and the Tax Court found that the existing case law did not provide any specific limit on the period of time that a third-party exchange facilitator may hold title to the replacement property before the exchange of properties must occur.
In reaching its decision, the Tax Court specifically rejected the IRS’s position that, prior to Rev. Proc. 2000-37, a third-party exchange facilitator must acquire the benefits and burdens of ownership of the property. Read the Tax Court’s 63-page opinion [PDF 224 KB] and read TaxNewsFlash-United States for an initial description of the case.
AOD 2017-06—appearing in the Internal Revenue Bulletin 2017-33 [PDF 164 KB]—states the IRS nonacquiescence relates to the Tax Court’s holding that the taxpayer’s sale and acquisition of business property qualifies as a like-kind exchange under section 1031 even though 17 months before the exchange, an accommodating party facilitating the transaction acquired title to the replacement property and the taxpayer acquired the benefits and burdens of ownership of the property.
© 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.
KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
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.