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(PREVIOUS)
qualified small business stock to another qualified small business
stock, respectively, permit taxpayers to receive sales proceeds
without current recognition of gain if the reinvestment requirements
are satisfied.
2. Property
held for use in trade or business or held for investment in a
like-kind exchange
Present
Law
In
general
An
exchange of property, like a sale, generally is a taxable transaction.
However, present law provides that no gain or loss is recognized
if property held for productive use in the taxpayer's trade or
business, or property held for investment purposes, is exchanged
for property of a like kind that is also held for productive use
in a trade or business or for investment.(footnote
525) This provision does not apply to exchanges of
stock in trade or other property held primarily for sale, or to
stocks, bonds, partnership interests, choses in action, certificates
of trust or beneficial interest, other securities or evidences
of indebtedness or interest, or to certain exchanges involving
livestock or involving foreign property.
Property
held for productive use in trade or business or held for investment
The
nonrecognition of gain applies only if property held for productive
use in the taxpayer's trade or business, or property held for
investment purposes, is exchanged for property of a like kind
that is also held for productive use in a trade or business or
held for investment (the "holding requirement"). There is significant
uncertainty as to whether a taxpayer satisfies the holding requirement
when property involved in a like-kind exchange is received shortly
before, or transferred shortly after, the exchange by the taxpayer
(e.g. distribution of property from a partnership followed by
the taxpayer's exchange of such property for like-kind property
or contribution by the taxpayer of property received in an exchange
to a corporation immediately after the exchange).
The
IRS has ruled that a taxpayer's contribution of property received
in a like-kind exchange to a controlled corporation immediately
after the exchange does not satisfy the holding requirement of
section 1031.(footnote 526) Similarly,
the IRS has ruled that a taxpayer's exchange of property that
it received immediately prior to the exchange (as part of a tax-free
liquidation of a wholly-owned corporation) does not satisfy the
holding requirement.(footnote 527)
Additionally, numerous cases have held that the intent of the
taxpayers at the time of the exchange to liquidate the (NEXT
PAGE)
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525
Sec. 1031.
526 Rev. Rul. 75-292, 1975-2 C.B. 333.
527 Rev. Rul. 77-337, 1977-2 C.B. 305. See also Rev. Rul. 77-297,
1977-2 C.B. 304 (providing that an acquisition of property solely
for the purpose of exchanging such property for like kind property
does not meet the holding requirement of section 1031).
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