Teruya Brothers, Ltd. & Subsidiaries - Page 9

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          $10,700,878 in realized gain from the Royal Towers transaction              
          (after deducting claimed selling expenses of $560,616).                     
          III. Notice of Deficiency                                                   
               In the notice of deficiency, respondent determined that                
          petitioner must recognize $12,041,026 in gains, which consists of           
          the gains that Teruya deferred on its Federal income tax return             
          for its taxable year ending March 31, 1996.6                                
               This case presents an issue of first impression regarding              
          the application of section 1031(f), which restricts                         
          nonrecognition of gain or loss with respect to like-kind                    
          exchanges between related persons.7                                         
          I.   General Requirements for Like-Kind Exchanges                           
               Section 1031(a)(1) generally provides that no gain or loss             
          shall be recognized on the exchange of like-kind properties held            
          for productive use in a trade or business or for investment.                
          Under certain conditions, a taxpayer’s nonsimultaneous transfer             
          and receipt of like-kind properties may qualify for section 1031            

               6 The deferred gains from the Ocean Vista and Royal Towers             
          transactions that the parties stipulated total $12,046,047.  The            
          parties do not explain the seeming discrepancy between this                 
          figure and the $12,041,026 adjustment in the notice of                      
               7 The examination in this case commenced in November 1997.             
          Consequently, the burden of proof rule of sec. 7491(a)(1) does              
          not apply.  Internal Revenue Service Restructuring and Reform Act           
          of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 727.                      

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