- 16 -
reconveyance to petitioner of the Lawrence Drive property--now
substantially improved--as petitioners reported.
The tax significance of the answer to the question stems
from the disparity in the adjusted bases of the McDonald Street
and Lawrence Drive properties in petitioner’s hands. McDonald
Street, which petitioner purchased in 1976-77, had an adjusted
basis in his hands substantially lower than his cost of Lawrence
Drive, which he purchased in 1992. Petitioner therefore reported
as the taxable sale not his permanent relinquishment to WLC of
the low-basis McDonald Street property, but rather the first leg
of the “repo” transaction that temporarily parked the high-basis
Lawrence Drive property with WLC.
Legal and Administrative Background
The primary reason that has been given for deferring
recognition of gain under section 1031(a) on exchanges of like-
kind property is that the exchange does not materially alter the
taxpayer’s economic position; the property received in the
exchange is considered a continuation of the old property still
unliquidated. See, e.g., Koch v. Commissioner, 71 T.C. 54, 63-64
(1978). However, section 1031(a) does not go so far in
implementing this notion as to be a reinvestment rollover
provision, like section 1033 or section 1034. A sale of
qualified property for cash requires that gain or loss be
Page: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 NextLast modified: May 25, 2011