Contact Us

Law Offices of Donald A. Barnes, PLLC
818 Connecticut Avenue, N.W., Suite 1200
Washington, DC 20006
Telephone: (202) 728-4407
Cell: (202) 360-0275
Contact Us

Washington Tax Alert - April 1, 2009 Like Kind Exchanges

Washington Tax Alert from Don Barnes,

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.