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IV. Analysis of the Ocean View and Royal Towers Transactions
Teruya exchanged Ocean View and Royal Towers for like-kind
replacement properties formerly owned by Times. A qualified
intermediary immediately sold Ocean Vista and Royal Towers to
unrelated third parties. Times received the proceeds, plus
additional cash from Teruya.
These transactions are economically equivalent to direct
exchanges of properties between Teruya and Times (with boot from
Teruya to Times), followed by Times’s sales of the properties to
unrelated third parties. The interposition of a qualified
intermediary in these transactions cannot obscure the end result.
Petitioner offers no explanation for structuring the Ocean Vista
and Royal Towers transactions as it did, and the record discloses
no reason (other than seeking to avoid the section 1031(f) rules)
for Teruya’s using a qualified intermediary to accomplish the
transactions. Under the circumstances, we are led to the
conclusion that Teruya used the multiparty structures to avoid
the consequences of economically equivalent direct exchanges with
Times. As discussed below, petitioner has failed to establish
that avoidance of Federal income taxes was not one of the
principal purposes of the Ocean Vista and Royal Towers
transactions.
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