Chapter § 55.14 RELATED-PARTY EXCHANGES

• Jurisdiction: Oregon

§ 55.14 RELATED-PARTY EXCHANGES

§ 55.14-1 Overview

§ 55.14-1(a) General Rule

An exchange between related parties will be taxable to both parties if within two years after the exchange either the related party disposes of the relinquished property or the exchanger disposes of the replacement property. IRC § 1031(f)(1).

§ 55.14-1(b) Series of Related Steps

The related-party rules cannot be avoided by entering into a series of steps structured to avoid the purpose of the related-party rules. IRC § 1031(f)(4).

§ 55.14-1(c) Exceptions to General Rule

The general rule that related-party exchanges will be taxable unless both the exchanger and the related party held the respective properties for two years has a number of exceptions:

(1) A disposition within the two-year period after the death of the exchanger or the related party.

(2) A disposition within the two-year period as a result of a condemnation or threat of condemnation.

(3) A disposition that did not have as one of its principal purposes the avoidance of federal income taxes ("no-tax-avoidance exception").

IRC § 1031(f)(2). The no-tax-avoidance exception has expanded over the years and provides quite a number of different ways to avoid the related-party rules. This exception is discussed more fully in § 55.14-3(a) to § 55.14-4(c).

CAVEAT: This exception has an additional requirement that the application of the exception must be "established to the satisfaction of the" IRS. IRC § 1031(f)(2)(C).

§ 55.14-2 Related Party Defined

§ 55.14-2(a) General Rule

Related parties include siblings, spouses, ancestors, lineal descendants, a corporation 50 percent owned directly or indirectly by the same person, and two corporations that are members of the same controlled group. IRC § 267(b), IRC § 707(b)(1), IRC § 1031(f)(3).

§ 55.14-2(b) Who Is Not Related?

Obviously, anyone who is not defined as being related (see § 55.14-2(a)) is not related. Examples include the relationship between a married couple and their son-in-law or daughter-in-law. Thus, an exchange between the couple and their daughter-in-law is not subject to the related-party rules. Another example is an individual exchanger and a partnership or corporation in which the exchanger owns 49 percent directly or indirectly and nonrelated persons own the remaining interests in the entity.

§ 55.14-3 Examples of Allowable Related-Party Exchanges

NOTE: Although § 55.14-3(a) to § 55.14-4(c) refer to certain transactions between related parties as related-party exchanges, the IRS takes the position that only a "true exchange"

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