Are Related-Party Acquisitions in Anticipation of Exchange Technically and Theoretically Valid?

Journal of Taxation, Vol. 120, No. 52, 2014

22 Pages Posted: 5 Mar 2014 Last revised: 22 May 2014

Date Written: March 4, 2014


The purposes of Section 1031(a) (the general nonrecognition provision) and Section 1031(f) (the provision governing related-party exchanges) suggest that a related party’s acquisition of replacement property in anticipation of transferring it to an exchanger should not trigger the operation of Section 1031(f)(4). Nonetheless, related party transactions are subject to close scrutiny under sham transaction, substance-over-form, and anti-abuse doctrines. A District Court’s failure to recognize the distinctions among laws governing such transactions makes the decision a prime candidate for a more enlightened approach by the Eighth Circuit on appeal. This article examines the purposes and applications of Sections 1031(a) and 1031(f) and reveals that the District Court erred by applying a Section 1031(a) analysis to a transaction that came within Section 1031(f). It illustrates that an exchange should qualify for Section 1031 nonrecognition if a related party acquires property in anticipation of an exchange and transfers it to the exchanger. If the related party or exchanger is a sham entity or if the related party is the exchanger’s agent, however, the transaction may fail to qualify for Section 1031 nonrecognition. Because the District Court failed to appreciate this distinction, its opinion leaves something to be desired.

Keywords: Section 1031, section 1031(f), related-party exchanges, North Central, acquisition in anticipation of exchange, exchange program

Suggested Citation

Borden, Bradley T. and Lederman, Alan S. and Alton, Kelly E., Are Related-Party Acquisitions in Anticipation of Exchange Technically and Theoretically Valid? (March 4, 2014). Journal of Taxation, Vol. 120, No. 52, 2014, Available at SSRN:

Bradley T. Borden (Contact Author)

Brooklyn Law School ( email )

250 Joralemon Street
Brooklyn, NY 11201
United States


Alan S. Lederman

Akerman, Senterfitt ( email )

One Southeast Third Avenue
25th Floor
Miami, FL 33131-1714
United States

Kelly E. Alton

NES Financial ( email )

50 West San Fernando Street
Suite 300
San Jose, CA 95113
United States
4083670828 (Phone)

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