shifting basis via incestuous 1031s

I call transactions with related parties incestuous. So an incestuous 1031 is between related parties. 1031's shift basis between the assets. The basis shift doesn't work if either 1031 asset is disposed of within 2 years. (1031(f))

For those clients with a considerable real estate portfolio, the planner should see if there are any assets with a high basis that will be held long-term which could be exchanged for other realty in the portfolio with a low basis, thereby restarting depreciation and reducing gain on a later sale.

Simple example: Client owns vacant land with a $1M FMV and basis and no mortgage, as well as an apartment building with a $1M FMV and low basis and no mortgage. Client shifts the apartment building to an LLC taxed as a partnership with Client owning 99% and then exchanges the land for the apartment building. Client gets to restart depreciation with a $1M basis in the apartment building.

You can't do a 1031 exchange with yourself.

Of course not, but you can do it with a related party. See 1031(f).

Check out 1031(f)(4) which tells us that structuring a shenanigan to avoid the related party rules won't work. But I'm sure you have a convoluted argument to worm your way around that.

Just have the preparer not sign. See other thread.

Please tell me what the purpose of section 1031 is if it's not to avoid tax on a restructuring of one's real estate portfolio. The tax issue is not 1031(f)(4). It's whether the transaction fits within a judicial doctrine.

How one looks at tax law depends on whether one is in compliance or planning. You guys prefer black and white. I work in gray. I most definitely empathize with your higher burden. And I can see why this type of planning makes you uncomfortable.

I know what happens if the client doesn't do it. And I don't see downside risk (although that gets into how Appeals works.)

Please tell me what the purpose of section 1031 is if it's not to avoid tax on a restructuring of one's real estate portfolio.

1031 doesn't avoid tax when exchanging with a related party. So why do you want to mess with 1031 if you're trying to avoid tax?

There is no bar on 1031s among related parties. 1031s exchange basis. That fact is actually used by sophisticated taxpayers and is occasionally discussed in tax conferences. If you don't like it, then at least be aware of it.

There is no bar on 1031s among related parties.

Yes there is. You might want to read a couple of Tax Court cases that said so. Teruya Bros., 124 T.C. 45 (2005), aff’d 9th Cir. ($4,144,359 deficiency); Ocmulgee Fields, Inc., 132 T.C. 105 (2009), aff’d 3d Cir. ($2,015,862 deficiency); Malulani Group, TCM 2016-209, aff’d 9th Cir. ($651,665 deficiencies).

I've been gritting my teeth and biting my tongue while reading post after post from gatortaxguy, but this is getting out of hand. Gatortaxguy, in case you haven't tuned into it yet, your approach to this forum is akin to a jock busting the door open of the band room at a junior high school and flexing his muscles in front of the "sissy music kids" while mocking them. If I'm the only one who feels this way, then fine, have at it. But my genuine perception is that, if you keep up this tone and bravado, it will eventually end up with your posts being ignored. I've already started to completely tune them out.

Did you have a question in this post or are you just throwing things out there to get a reaction to then argue about it and claim that "well this is just a way to save on taxes, you should be excited!"?

Also, let me ask you this, has working in this "grey area" ever resulted in disciplinary action by your local licensing authority?

Some people like vanilla, while some want something with more pizazz.

I was an MIT trained economist before deciding to become a tax lawyer. I often see situations that look very different but have the same or similar economics. After a lengthy career of studying syndicated tax shelters and loopholes in the Code, I'm trying to educate others involved with tax law that there are many common opportunities for tax savings that are being missed. Chief among them is the distinction between OI and LTCG. Estate and sales taxes are based more on form than substance.

There is no reason why middle class taxpayers can't use techniques employed by the big boys. To me, it's a social good.

As an aside, I'm new at chatting online, so I apologize if my tone is offensive. Please don't make it personal. Like I said, I'm trying to educate -- and in my view stirring things up while doing so is not only fun, it helps to get one out of the proverbial box.

The idea of "read the room" comes to mind. If you felt like you did, you missed the mark, IMO.
I don't disagree with most of what Alex has said above.
Your tone drips pretty heavily of arrogance and disdain for the rest of us.

Well, again, I apologize. I respect professionals such as yourself and am trying to be helpful. I try to be objective and avoid snarky comments. Coming on too strong has always been one of my problems. The bottom line is I'm not here for mental masturbation.

So I accept the criticism and will try to be less offensive.

Thanks.

I don't find your tone offensive. I just find the strategies pretty out there and wonder how much trouble you will get into if the IRS ever figures out who you are and comes knocking. Maybe you are a genius. I don't know. Also, at this time of year, I don't have the time to follow the details of the transactions you propose.

I think in terms of reading the room, it's more that we use the forum as a sounding board as we work through client issues or discuss tax law changes. For example, for me most recently I received very valuable help as I worked through my first QPRT. Several years ago, we had very helpful conversations as we worked through the 2014 tangible property regulations. It's not that I think that we should shut down conversation about great tax planning strategies. It's just not my priority right nowas I work another Sunday to make the deadline.

Sounds like you may be posting to avoid work...

That's pretty much what I'm doing. I'm 73 with 6 stents. So I just enjoy life most of the time.

I thank you for your comment about the room. I pretty much expected that would be the case. And perhaps I should be in another room. If you know of one, please advise. My thought in joining this one was that I could help other tax professionals be aware of outside-the-box techniques that might be beneficial for their clients.

This thread is only for clients with large real estate portfolios. Any preparer with such a client should be interested in it, if only to put as a tool in the box and perhaps for marketing. "Here's a technique I am not recommending, but I thought you would want to know about..."

Conservative tax professionals don't like my approach. I'm extreme. I take a fact pattern, figure out a way to cut government revenues and then get back to what the client was attempting to do.

There are plenty of attorneys who do closings and otherwise memorialize business transactions for a living. I'm not one of them. I want to live on the edge -- and that can be both interesting and unnerving. So be it.

I respect professionals such as yourself and am trying to be helpful.. Read it, I'm smarter and better than you all, but the world needs you who only prepare returns, and I know way more and can have fun showing off and making you all look inferior. We're not, by the way. And "we", the TPT members, run the gamut from newbies to older and more experienced than you, preparers and advisers, various qualifications and titles, but we are here not only to learn but to share and help.

Coming on too strong has always been one of my problems.. Who would have thunk?

Some of the smartest, most experienced and just plain damn good tax pros have been responding to you. Does it occur to you that you may be wrong, not in a moral sense but in a technical sense? Or is that just not possible?

From another thread, BTW, I tell people that the difference between a preparer and a planner is that the former was trained to record historic events and the latter was trained to create future facts. It's a completely different mindset, which is being amply displayed in these posts.. Read it, I'm a planner, you are a mere preparer, and I am superior, so listen to me and don't challenge me because I am w/o doubt better than you.

the TPT members, run the gamut from newbies to older and more experienced than you

More experience than gator? Is that possible? You know he is an MIT trained economist.

LIke I said, first time chatting. I got addicted. I've learned my lesson.
Thank you.

I've stopped chatting and will be happy to respond to private messages. My email is steve@gatortaxguy.com.