Revenue Ruling 77-297

A and B entered into a written agreement for A to sell ranch property to B for $1,000x. A used the ranch property in the business of raising livestock. To pay for the property, B placed $100x into escrow and agreed to pay an additional $200x at closing, assume a $160x liability of A, and execute a promissory note for $540x. The A-B agreement provided that if A found a suitable alternate property, B would cooperate with A to exchange that alternate property for A’s property. A subsequently located a second ranch property, owned by C, suitable for raising livestock. B and C entered into an agreement for B to purchase the ranch from C for $2,000x. To pay for the property, B placed $40x into escrow and agreed to pay an additional $800x at closing, assume a $400x liability of C, and execute a promissory note for $760x. After the sale of C’s property to B was completed, B transferred the property to A in exchange for A’s ranch property and assumed A’s $160x liability. With C’s consent, A assumed C’s $400x liability and the $760x note B had executed in the B-C transaction. C released B from liability on the note. Under § 1031(a) of the Internal Revenue Code, no gain or loss will be recognized on a transaction in which property held for productive use in trade or business or for investment is exchanged solely for property of a like kind to be held either for productive use in trade or business or for investment. The Internal Revenue Service (IRS) issued a revenue ruling regarding whether the A-B transactions qualified as an exchange of like-kind property in which no gain or loss would be recognized under § 1031(a).