36. Special Circumstances

It is important to note that this section ONLY APPLIES if the tax payer had a bona fide intent to enter into a deferred exchange at the beginning of the exchange period. Examples of the most important points are as follows:

  • The Taxpayer enters into a deferred exchange and transfers his Relinquished Property in 1998. In 1999 he validly acquires replacement property and also receives some cash (boot). The cash will be taxed in 1999 on the installment method.

  • A Taxpayer enters into a deferred exchange and transfers his Relinquished Property in 1998. In 1999 the exchange fails and he receives the cash. The cash will be taxed as having been received in 1999 and given installment sale treatment.

  • A Taxpayer enters into a deferred exchange and transfers his Relinquished Property to a Qualified Intermediary. Upon the transfer of the Relinquished Property the Taxpayer also receives a note directly from the Buyer of the Relinquished Property. Notwithstanding the fact that the property was transferred to the Qualified Intermediary, but the note received from the Buyer, the Taxpayer will still receive installment sale treatment on the notes.

  • A Taxpayer enters into a deferred exchange and transfers the Relinquished Property to a Qualified Intermediary in 1998. The Qualified Intermediary concurrently sells the property to the Buyer. In addition to cash, the Buyer executes a note to the Qualified Intermediary, which is held in the exchange. In 1999 the Qualified Intermediary acquires Replacement Property but the note is not used in the acquisition. In addition to delivering the Replacement Property to the Taxpayer the Qualified Intermediary also delivers an assignment of the note. The Taxpayer may report the note on the installment method, as payments are received.

For purposes of installment sale treatment, the determination of whether the Taxpayer has "received payment" will be made without regard to the fact that an exchange agreement is secured by cash placed into a Qualified Escrow or a Qualified Trust and/or without regard to the fact that a Qualified Intermediary is used to facilitate the Exchange.

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