ABATax: Joint Report on 1031 Open Issues

Section of Taxation
Submission to the Federal Executive Branch

Joint Report on IRC Section 1031
Open Issues Involving Partnerships

The following report represents the individual views of the members of the Section of Taxation who prepared them and does not represent the position of the American Bar Association or the Section of Taxation.

The comments in this Joint Report ("Report") were prepared by individual members of the following three Tax Section Committees: Sales, Exchanges and Basis; Partnerships; and Real Estate. Principal responsibility was exercised by Mary Foster, Ron Platner, and John Schmalz, and the report reflects their personal views. Substantive contributions were made by Adam Handler and Lou Weller. The Report was reviewed by Howard Levine of the Section’s Committee on Government Submissions and by Stanley Blend, Council Director for the Committee on Sales, Exchanges and Basis.

Although members of the Section of Taxation who participated in preparing the Report have clients who would be affected by the federal tax principles addressed by the Report or have advised clients on the application of such principles, no such member (or the firm or organization to which such member belongs) has been engaged by a client to make a government submission with respect to, or otherwise to influence the development or outcome of, the specific subject matter of the Report.

Contact:

Ronold Platner
(602) 382-6256
rplatner@swlaw.com

Date: February 8, 2001

Issues Addressed

Introduction
Questions & Answers
I.	Can like-kind property satisfy the “qualified use” requirement, under certain circumstances?
II.	Can a Section 1031 deferred exchange be completed if the partnership that transferred the relinquished property is terminated under Section 708(b)(1)(B) because of the sale or exchange of 50% or more of the capital or profits interest in the partnership?
III.	In connection with a Section 1031 exchange can a partnership make special allocations of the “boot” gain recognized pursuant to Section 1031(b) exchange, including historical precontribution gain governed by Section 704(c)?
IV.	When a partnership engages in a Section 1031 deferred exchange that is not completed until after the end of the partnership’s tax year, is any temporary reduction or a “gap” in the amount of partnership liabilities required to be treated as a “distribution of money to the partners” under Section 752(b), if upon completion of the deferred exchange the amount of liabilities encumbering the replacement property is equal to or greater than the debt encumbering the relinquished property?
V.	When a partnership engages in a Section 1031 deferred exchange, does Section 465(e) trigger the realization of income because of a “gap” or temporary reduction in the amount the taxpayer has at risk, if upon completion of the deferred exchange the amount the taxpayer has at risk is equal to or greater than the amount at risk immediately before the transfer of the relinquished property?