- 14 -
Although respondent’s argument has superficial appeal, it is
only loosely grounded in the above-quoted, highly elliptical
example in the legislative history. Cf. Mandarino, “Reconciling
Rulings on Related Party Like-Kind Exchanges”, 30 Real Estate
Taxn. 174, 175 (Third Quarter 2003) (“Because of the way this
example is drafted, it appears not to make the point for which it
is offered.”). Moreover, respondent’s analysis fails to consider
the non-tax-avoidance exception of section 1031(f)(2)(C).11
Because this exception is subsumed within the purposes of section
1031(f), any inquiry into whether a transaction is structured to
avoid the purposes of section 1031(f) should also take this
exception into consideration.
Petitioner seems to suggest that Congress intended section
1031(f) to apply only insofar as the taxpayer fails to “continue
its investment” in property that it receives in a related-person
deferred exchange. Petitioner seems to suggest that what happens
to the relinquished property is of no consequence. We reject any
such suggestion as flatly contrary to section 1031(f), which
applies with equal force to postexchange dispositions by either
the taxpayer or the related person.
11 As previously discussed, in the context of a direct
exchange between related parties, sec. 1031(f)(2)(C) allows the
taxpayer to establish that neither the exchange nor the
disposition had as one of its principal purposes the avoidance of
Federal income tax.
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