Revenue Ruling 90-34

1990-1 C.B. 154 (1990)

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Revenue Ruling 90-34

Internal Revenue Service
1990-1 C.B. 154 (1990)

  • Written by Abby Roughton, JD

Facts

Taxpayer X held Blackacre for productive use in trade or business. Blackacre was unencumbered real property with a fair market value of $1 million. In May 1989, X and another party, Y, entered into a contract under which X would transfer Blackacre to Y, and Y would transfer property of a like kind with the same fair market value to X. The contract provided that X would identify the like-kind property within 45 days of X’s transfer of Blackacre to Y, and Y would then purchase and transfer the identified property to X before the earlier of (1) 180 days from X’s transfer of Blackacre or (2) the due date of X’s federal income-tax return for the taxable year in which the transfer of Blackacre occurred. On May 23, 1989, X transferred Blackacre to Y pursuant to the contract. A few days later, X identified Whiteacre as the like-kind property X wanted to receive in the exchange. Whiteacre was owned by Z and was unencumbered real property with a fair market value of $1 million. In July 1989, Y purchased Whiteacre from Z and directed Z to transfer legal title to Whiteacre directly to X. Under § 1031(a)(1) of the Internal Revenue Code, certain exchanges of like-kind property qualify for nonrecognition of gain or loss. The Internal Revenue Service issued a revenue ruling that discussed whether the exchange of Blackacre for Whiteacre qualified for nonrecognition as to X, even though Y never held legal title to Whiteacre.

Rule of Law

Issue

Holding and Reasoning ()

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Casebooks

Federal Income Tax

Key Terms

  • EncumbranceA claim on real property by someone other than the owner; a lien or mortgage.
  • Fair Market ValueThe price upon which a reasonable motivated buyer and a reasonable motivated seller would agree in an open and fair marketplace.
  • Legal TitleAn ownership interest in real property that is recognized and enforceable at law but does not necessarily afford rights to the use and enjoyment of the property.
  • Like-Kind ExchangeA purchase and sale of real property that qualifies for favorable tax treatment under § 1031 of the Internal Revenue Code.
  • NonrecognitionA provision whereby gains or losses from certain transactions are not taken into account for tax purposes.
  • Revenue RulingA ruling issued by the national office of the Internal Revenue Service as an official interpretation of the tax law as applied to a specific transaction.

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