Teruya Brothers, Ltd. & Subsidiaries - Page 15

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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                      

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