Donald DeCleene and Doris DeCleene - Page 16

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          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                   

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