Effect of IRS Nonacquiesence on Tax Planning and Reporting

6 Pages Posted: 9 Jan 2018

Date Written: January 8, 2018


The IRS has published a nonacquiesence to the tax court’s decision in Estate of Bartell. That case held that a non-safe-harbor improvements exchange qualifies for section 1031 nonrecognition. This Article considers the effect that the nonacquiesence might have on taxpayers who would otherwise rely upon the Bartell decision to structure improvements exchanges. The Article concludes that some taxpayers may be concerned that the nonacquiesence could lead to greater scrutiny from the IRS, and they will use different structures when possible to avoid the Bartell structure. Taxpayers who are faced with the choice of paying tax or using the Bartell structure will most likely move forward based upon the tax court’s decision, recognizing that the expected cost of a such a reporting position generally will be less than the amount of tax due in a taxable sale. Because the tax court has already held in the taxpayer’s favor in Bartell, it would likely hold in another taxpayer’s favor, if it were to consider a similar transaction, so the likelihood that a transaction like the Bartell transaction would be treated favorably is high. The Article is therefore able to demonstrate how taxpayers’ reliance upon Bartell should, at a minimum, help them avoid any substantial-understatement penalties that could otherwise apply, if the IRS were to accomplish the unexpected and prevail in a case with a similar transaction. Thus, the nonacquiesence should have little effect on taxpayers’ decisions to do Bartell-like transactions, if no other structure will provide tax deferral.

Keywords: Section 1031 exchange, improvements exchange, non-safe harbor reverse exchange, IRS nonacquiesence

Suggested Citation

Borden, Bradley T., Effect of IRS Nonacquiesence on Tax Planning and Reporting (January 8, 2018). Journal of Passthrough Entities, Vol. 21, p. 19, 2018; Brooklyn Law School, Legal Studies Paper No. 546. Available at SSRN: https://ssrn.com/abstract=3098220

Bradley T. Borden (Contact Author)

Brooklyn Law School ( email )

250 Joralemon Street
Brooklyn, NY 11201
United States

HOME PAGE: http://www.brooklaw.edu

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