Teruya Brothers, Ltd. & Subsidiaries - Page 14

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               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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