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1988, until March 31, 1989, when they finally sold Sunshine
Liquor. They kept the profits and losses from both businesses.
These circumstances do not reflect or otherwise show the
existence of a tax-free exchange under section 1031.
The purchase of Bayshore Liquor and the subsequent sale of
Sunshine Liquor were not structured as a section 1031 exchange.
The escrow documents do not refer to a section 1031 exchange.
There is no indication that this transaction was intended to be a
section 1031 exchange. Additionally, it does not appear that the
ultimate purchasers of Sunshine Liquor were aware that a section
1031 exchange was intended. There is no evidence that
petitioners relied on section 1031 until they filed their 1989
Federal income tax return.
Petitioners apparently argue that Hanshaw was the de facto
owner of Sunshine Liquor at the time of the sale because part of
the proceeds from petitioners' sale of Sunshine Liquor were
utilized to pay off the debt incurred and owed to Hanshaw. In
other words, petitioners appear to contend that they had
previously accomplished a section 1031 exchange with Hanshaw and
were merely his "agents" in the sale of Sunshine Liquor. This
gloss on Hanshaw's role is not confirmed by the record. Hanshaw
refused to purchase Sunshine Liquor from petitioners when the
Sathavorans reneged on the agreement to purchase the store.
Hanshaw did not have any rights other than those granted to him
by petitioners' note. Hanshaw was only a creditor of
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