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under Crichton, “the conveyance of an entire interest in a
delineated natural resource treated as real property under state
law constitutes like kind property * * * when exchanged for other
real property interests.” In support of their position,
petitioners also cite Rev. Rul. 68-331, 1968-1 C.B. 352
(leasehold interest in a producing oil lease is like kind to an
improved ranch), and Rev. Rul. 55-749, 1955-2 C.B. 295 (perpetual
water rights are like kind to land).
On the other hand, not every exchange of real property
interests meets the section 1031 like-kind requirement. See Koch
v. Commissioner, 71 T.C. 54, 65 (1978) (holding that real estate
subject to a long-term lease is like kind to real estate not so
encumbered).10 For instance, carved-out oil payments, although
characterized as real property under State law, are not like kind
to a fee interest in real estate. See Fleming v. Commissioner,
9(...continued)
(2) a taxpayer who is not a dealer
in real estate exchanges city real estate for
a ranch or farm, or exchanges a leasehold of
a fee with 30 years or more to run for real
estate, or exchanges improved real estate for
unimproved real estate * * *
10 In Koch v. Commissioner, 71 T.C. 54, 65 (1978), this
Court stated that sec. 1031 requires a comparison of all factors
bearing upon the “nature and character” of the exchanged
properties as opposed to their “grade or quality.” These factors
include “the respective interests in the physical properties, the
nature of the title conveyed, the rights of the parties, [and]
the duration of the interests”. Id.
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