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Here, petitioners contend that because they have met all
operative conditions for the application of section 1.1031(k)-
1(g)(3) and (j)(2), Income Tax Regs., and of section 453, by
operation of law they have no actual or constructive receipt of
property in 1994, and, under the rules coordinating gain
recognition under sections 453 and 1031, they are not required to
recognize income in 1994. Respondent takes issue with only one
operative condition relative to petitioners’ argument–-that
petitioner had the requisite bona fide intent to enter into a
deferred exchange at the beginning of the subject transaction.6
6 In particular, respondent has not disputed that the
subject transaction was a deferred exchange within the meaning
of the regulations, which define a deferred exchange as:
an exchange in which, pursuant to an agreement, the
taxpayer transfers property held for productive use in
a trade or business or for investment * * * and
subsequently receives property to be held either for
productive use in a trade or business or for investment
* * * [Sec. 1.1031(k)-1(a), Income Tax Regs.]
Nor has respondent disputed that the escrow account used in
the subject transaction was a “qualified escrow account” within
the meaning of sec. 1.1031(k)-1(g)(3)(ii), Income Tax Regs.,
which defines a “qualified escrow account” as:
an escrow account wherein–-
(A) The escrow holder is not the taxpayer or
a disqualified person (as defined in paragraph (k) of
this section), and
(B) The escrow agreement expressly limits the
taxpayer’s rights to receive, pledge, borrow, or
otherwise obtain the benefits of the cash or cash
(continued...)
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