Teruya Brothers, Ltd. & Subsidiaries - Page 12

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          transactions) structured to avoid the purposes of this subsection           
          [(f)].”  Inasmuch as the statute does not directly identify or              
          describe the purposes of subsection (f), we turn our attention to           
          the legislative history.                                                    
          III. Legislative History:  Purposes of Section 1031(f)                      
               Property acquired in a like-kind exchange generally takes              
          the basis of the property relinquished.  See sec. 1031(d).  In              
          other words, there is a “shifting” of tax basis between the                 
          relinquished property and the replacement property.  See H. Conf.           
          Rept. 101-386, at 613 (1989).                                               
               Before 1989, Congress was concerned that because of this               
          basis-shifting effect, “related parties * * * engaged in like-              
          kind exchanges of high basis property for low basis property in             
          anticipation of the sale of the low basis property in order to              
          reduce or avoid the recognition of gain on the subsequent sale.”            
          H. Rept. 101-247, at 1340 (1989).  In effect, because of basis              
          shifting, related persons were able to “cash out” of their                  
          investments in property having an inherent gain at relatively               
          little or no tax cost.  See id.  Also, in some cases, basis                 
          shifting allowed related persons to accelerate a loss on property           
          that they ultimately retained.  See id.  Responding to these                
          perceived abuses, Congress concluded that “if a related party               
          exchange is followed shortly thereafter by a disposition of the             
          property, the related parties have, in effect, ‘cashed out’ of              

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