Washington Tax Alert from Don Barnes, dbarnes@washingtontaxlaw.com
April 1, 2009
The Tax Court issued an opinion yesterday holding that an exchange of commercial real estate effected through a qualified intermediary did not qualify for like kind exchange treatment under IRC § 1031. Ocmulgee Fields, Inc. v. Commissioner , 132 T.C. No. 6 (2009). The taxpayer in Ocmulgee used a qualified intermediary to sell a shopping center to an unrelated party for $7.25 million in cash. The qualified intermediary acquired replacement property for the taxpayer from a partnership whose two partners were shareholders of the taxpayer.
The Tax Court denied IRC § 1031 treatment because the taxpayer's basis in the shopping center was $1.8 million lower than the partnership's basis in the replacement property, and the taxpayer was unable to show sufficient business reasons for the exchange to avoid a finding of tax avoidance. The Court followed its earlier decision in Teruya Bros., Ltd. & Subs. v. Commissioner , 124 T.C. 45 (2005). Although the Court did not impose an accuracy-related penalty on the taxpayer in Ocmulgee , it is likely the Court will impose penalties on taxpayers taking similar return positions in tax years after 2005.
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