Individual Finds Glitch in Proposed Like-Kind Exchange Regs

Submitter Information

Submitter Name: Monte Jackel

City: Silver Spring

Country: United States

State or Province: MD

• Docket ID: IRS-2020-0018

• Document Type: Public Submission

• Document Subtype: Public Comment

• Status: Posted

• Received Date: Jun 12, 2020

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Comment

The proposed regulations at prop. 1.1031(a)-1(a)(3) says that a number of the regulatory provisions, including final reg. 1.1031(d)-2, relating to assumption of liabilities, and 1.1031(j)-1, relating to multiple properties, do not apply unless they are qualifying exchanges of real property, as now proposed to be defined. And so, how are the proposed regs applied if the exchange involves both qualifying real property and boot (other property)? If a liability encumbers all assets in the exchange, how is this rule applied? Like 1.1031(j)-1? Is the debt bifurcated? For example, if the taxpayer surrenders real property and non-real property, is the portion of the debt encumbering the other property boot? If non-real property is also received and encumbered, is that portion of the debt an offset to boot?

The proposed regs have, I think, a real glitch in them in that the multiple property rules under final reg 1.1031(j)-1 must apply in some manner to take into account property that is not part of the tax free exchange. It is much more likely that those rules will now come into play but the proposed regs seem to turn of those rules because it is not an exchange of qualifying real property. And how to deal with liabilities assumed or relieved of needs also to be taken into account. Example 5 of the 1.1031(j)-1 final regs would seem to require it but the (j)-1 rules seem to be turned off by the proposed rule at prop. 1.1031(a)-1(a)(3). Makes no sense to me.