Teruya Brothers, Ltd. & Subsidiaries - Page 17

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          that the Ocean Vista and Royal Towers transactions were                     
          conditional on effecting a section 1031 exchange.                           
               Petitioner’s contentions might be relevant in determining              
          whether a transaction is in substance an exchange or a sale of              
          like-kind property.  See Alderson v. Commissioner, 317 F.2d 790             
          (9th Cir. 1963), revg. 38 T.C. 215 (1962).  In the instant case,            
          however, they have little relevance.  In the first instance,                
          respondent does not contend that the transactions in question               
          were disguised sales or otherwise fail to meet the general                  
          requirements of section 1031(a)(1).  More fundamentally, section            
          1031(f) presupposes that an exchange to which it applies                    
          otherwise meets the requirements of section 1031(a)(1).  See sec.           
          1031(f)(1)(B).  Even if Teruya never intended to make a direct              
          sale of the relinquished properties, this does not mean that                
          section 1031(f) is not implicated or that the deferred sale was             
          not structured so as to avoid Federal income taxes.  The economic           
          substance of the transactions remains that the investments in               
          Ocean Vista and Royal Towers were cashed out immediately and                
          Times, a related person, ended up with the cash proceeds.                   
               With respect to the Ocean Vista transaction, petitioner                
          contends that there was no tax avoidance purpose because Times              
          recognized a gain on its sale of Kupuohi II ($1,352,639) that was           
          larger than the gain Teruya would have recognized ($1,345,169)              

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Last modified: May 25, 2011