Recent Related Party Case – U.S. Court Of Appeals
U.S Court of Appeals Affirms Trial Court Decision in Favor of the IRS
In the recent case of North Central Rental & Leasing, LLC ex. Rel. Butler v. United States, 2015 WL 855725 (U.S.C.A. 8th Cir., March 2, 2015), the U.S. Court of Appeals affirmed the decision of the trial court in favor of the IRS in denying a taxpayer’s deferral of tax under Section 1031. This case involved two related companies (one of which was the subsidiary of the other), and a like-kind program exchange of construction equipment and machinery.
The transactions involved the subsidiary company, as the exchanger, conveying machinery and equipment to a Qualified Intermediary (QI), who then sold the relinquished property to an unrelated third party. The parent company then purchased from the manufacturer the equipment and machinery identified by the subsidiary as replacement property, because the parent could acquire the property from the manufacturer on more favorable terms than the subsidiary. The subsidiary then purchased the machinery and equipment from the parent as the subsidiary’s replacement property to complete the exchange.
The court determined that this strategy allowed the two related companies to cash out of the investment in equipment in a manner that would not be possible if this was accomplished solely by the subsidiary company. The court deemed the transactions unnecessarily complex, and attributed that complexity to a desire to sidestep IRC Section 1031(f).
Ernst And Young Study Supports 1031 Exchanges
According to a recent Ernst and Young Study, The Economic Impact of Repealing Like-Kind Exchange Rules, the study finds that repeal of Section 1031 results in less federal revenue, shrinks the economy by $8.1 billion, discourages investment, negatively impacts the overall economy with an unfair concentration in certain industries, burdens certain businesses and taxpayers and is at cross-purposes with the goals of tax reform. The analysis finds that repeal of the like-kind exchange rules would increase the cost of capital in the economy, even when combined with lower tax rates. The higher cost of capital is found to discourage business investment which adversely affects the overall economy.
Repealing Section 1031 would subject businesses that rely on these rules to a higher tax burden on their transactions, resulting in longer holding periods, greater reliance on debt financing, and less productive deployment of capital in the economy. Many affected businesses are in pass-through form, which would not receive a benefit if the revenue from repeal of like-kind exchange rules is used to finance a lower corporate income tax rate. For an overview of this study, click on this link, Ernst and Young 1031 Exchange Study Overview.
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Industry experts from the Urban Land Institute (ULI) and PriceWaterhouseCoopers (PWC) release their projections for the top 20 housing markets with lower costs of living and better than average employment prospects. Read More…
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Want to know which states have the most and least burdensome tax rates? WalletHub analyzed how state and local tax rates compare to the national median in the 50 states comparing eight different types of taxation in order to determine: 1) Which states have the highest and lowest tax rates; 2) how those rates compare to the national median; 3) which states offer the best tax rates when adjusted by the cost-of-living index. Read More…
Asset Preservation would appreciate the opportunity to work with you on your next exchange regardless of how simple or complex. Give us a call at 800-282-1031 to open a 1031 exchange. Or to open a 1031 exchange online, email us at firstname.lastname@example.org.
API is committed to providing its exchange customers with unmatched service, and the highest level of security available in the 1031 exchange industry. From the customer’s first contact with an API representative, API’s professional exchange counselors, attorneys and accountants work together to meet the customer’s service needs in order to ensure a smooth transaction with no surprises. In the background, API’s management maintains tight financial controls and multi-layered security systems necessary to provide a level of comfort and performance quality relied on by sophisticated investors and corporate America; we call it the “The API Advantage™.”
Attend A Complimentary 1031 Exchange Webinar For CPE Credit
Title: 1031 TAX DEFERRED EXCHANGE ISSUES IN 2015
Presenter: Scott Saunders, Asset Preservation, Inc.
This one-hour webinar covers critical IRS time deadlines in delayed exchange, like-kind requirements including creative property variations like easements and personal property exchanges, partnership/LLC scenarios (and how to best structure in advance of a 1031 exchange), reverse and improvement exchanges, related party transactions and how to avoid common pitfalls and other 1031 exchange related issues. This webinar will provide a summary of current developments regarding possible tax reform and the implications for 1031 exchanges and addresses applicable Revenue Rulings, PLR’s and other recent IRS guidance on current issues related to exchanges.
Date: Friday, May 1, 2015
Time: 8:00 a.m. – 9:00 a.m. (PST)
CPE Credits: 1.0 hour (Accountants & CPAs)
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With a good supply of land and a growing demand for new housing, these five up-and-coming cities will be some of the most lucrative areas for home builders in the next few years. Read More…