Category: Nontaxable Exchanges/Real
Estate Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com Taxpayer wishes to exchange real property for real estate investment trust (REIT) stock. The taxpayer seeks to characterize the transaction as a like-kind exchange under Section 1031. This is clearly not possible. Section 1031(a)(2)(B), (C) and (E) provide that like-kind exchange treatment does not apply to any exchange of stocks, bonds, notes, other securities or evidences of indebtedness or interest, or certificates of trust or beneficial interests. It seems clear to me that one or more of these categories clearly applies to REIT stock. A REIT is either a corporation or a trust. See Section 856. As such, ownership of a REIT would be evidenced either by stock or some type of certificate of trust. Either of these two things seem to fall squarely the categories excluded by Section 1031(a)(2)(B), 1031(a)(2)(C), or 1031(a)(2)(E). I cannot locate any case or ruling on this issue, and none of the commentary services I have address the matter of REIT stock in a Section 1031 exchange. Apparently, the plain words of the statue speak for themselves. It is interesting to note that in the context of an involuntary conversion (Section 1033), it is possible in certain circumstances to purchase the stock of a corporation owning qualified replacement property. Perhaps this is the source of your client's confusion. Also, I mentioned to you the so-called UP-REIT structure. This could be what your client has heard about. I have attached some information for your reference. |
