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investment'". Commissioner v. P.G. Lake, Inc., 356 U.S. 260, 268
(1958) (quoting section 39.112(a)-1), Income Tax Regs.
(promulgated under the Internal Revenue Code of 1939), and
analyzing a tax-free exchange under section 112(b)(1) of the 1939
Code, a predecessor of section 1031). In an exchange of like-
kind property, "the taxpayer's economic situation after the
exchange is fundamentally the same as it was before the
transaction occurred." Koch v. Commissioner, 71 T.C. 54, 63
(1978). The U.S. Court of Appeals for the Fourth Circuit in
Coastal Terminals, Inc. v. United States, 320 F.2d 333, 337 (4th
Cir. 1963), stated:
The purpose of Section 1031(a), as shown by its
legislative history, is to defer recognition of gain or
loss when a direct exchange of property between the
taxpayer and another party takes place; a sale for cash
does not qualify as a nontaxable exchange even though
the cash is immediately reinvested in like property.
See also Magneson v. Commissioner, 753 F.2d 1490, 1494 (9th Cir.
1985), affg. 81 T.C. 767 (1983);3 Starker v. United States, 602
F.2d 1341, 1352 (9th Cir. 1979). In Barker v. Commissioner, 74
T.C. 555, 561 (1980), this Court noted:
The "exchange" requirement poses an analytical
problem because it runs headlong into the familiar tax
3 The case law, the regulations and the legislative history
are thus all in agreement that the basic reason for
nonrecognition of gain or loss on transfers of property under
sec. 1031 is that the taxpayer's economic situation after the
transfer is fundamentally the same as it was before the transfer:
his money is still tied up in investment in the same kind of
property. Magneson v. Commissioner, 753 F.2d 1490, 1494 (9th
Cir. 1985); affg. 81 T.C. 767 (1983).
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