Tax News

CCH (cch.taxgroup.com) reports:

  A deferred like-kind exchange of real property involving a corporation, a qualified intermediary and a limited liability company (LLC) that was related to the corporation did not qualify for nonrecognition of gain treatment because the corporation failed to prove that tax avoidance was not the principal purpose of the exchange. Although the corporation may not have had a prearranged plan to involve a related party, it failed to prove the absence of a tax-avoidance purpose since the corporation's deemed exchange with the related LLC resulted in a reduction of taxable gain and a lower applicable tax rate on the gain. The corporation retained the burden of proof on that issue because the IRS's deficiency notice was sufficient, its assumption that the deemed exchange and sale had a tax-avoidance purpose was not arbitrary or capricious, and the corporation failed to introduce credible evidence of the absence of a tax-avoidance purpose.

  The corporation was not liable for the accuracy-related penalty based on an underpayment in tax for failure to report gain that it was required to recognize from the exchange. The corporation had reasonable cause for the underpayment and acted in good faith when it relied on an experienced C.P.A. to prepare its return.

Ocmulgee Fields, Inc., 132 TC No. 6, Dec. 57,777

Other References:

 
Code Sec. 1031

  CCH Reference - 2009FED ¶29,608.2493

  CCH Reference - 2009FED ¶29,608.265

 
Code Sec. 6662

  CCH Reference - 2009FED ¶39,651G.155

 
Code Sec. 7491

  CCH Reference - 2009FED ¶42,520.10

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