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Like-kind exchanges under section 1031 and "boot" gain special allocations to the retiring partner

Article Abstract:

Use of special allocation rules to make distributions to retiring partners pursuant to IRC section 1031 like-kind exchanges will not be upheld under anti-abuse regulations that require transactions to have substantial economic effect. The special allocation will have no effect on the retiring partner because the partner only recognizes income to the extent that the boot in the exchange is distributed to that partner. Since the transaction would violate IRC section 704(c) and the anti-abuse provisions, continuing partners should find another means to avoid recognizing gain on the boot.

Allocation (Taxation), Tax allocation, Boot (Taxation)

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What are the continuing implications of Magneson on Section 1031 exchanges?

Article Abstract:

The ruling in Magneson v. Commissioner supported the concept that a like-kind exchange followed with a contribution to a partnership did not require taxation. Some advisors feel this decision will protect contributions to general and limited partnerships and limited liability companies, while others believe application is narrower. Magneson is a limited case, and should not be taken as favoring exchanges followed with transfers by limited partners.

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Taxing ghosts under section 1031

Article Abstract:

The IRS should provide guidance regarding IRC section 1031 like-kind exchanges when 'phantom' tax entities are involved in the transactions. Phantom or ghost entities include single member limited liability companies, grantor trusts, and qualified Subchapter S subsidiaries. The involvement of such entities in like-kind exchanges may result in recognition of gain under current law.

Limited liability companies

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