§12.17 - Gain not Recognized Under the Internal Revenue Code

• Jurisdiction: Washington

§12.17 GAIN NOT RECOGNIZED UNDER THE INTERNAL REVENUE CODE

The real estate excise tax does not apply to transfers that are exempt from federal income tax if the transfers are for entity formation, liquidation or dissolution, or reorganization, including but not limited to nonrecognition of gain or loss because of application of I.R.C. §§ 332, 337, 351, 368(a)(1), 721, or 731. RCW 82.45.010(3)(n); WAC 458-61A-212. This rule includes, but is not limited to, the nonrecognition of gain provisions under the following Internal Revenue Code provisions:

(a)	Section 332Corporate liquidationsComplete liquidations of subsidiaries.
(b)	Section 337Corporate liquidationsNonrecognition for property distributed to parent in complete liquidation of subsidiary.
(c)	Section 351Corporate organizations and reorganizationsTransfer to corporation controlled by transferor.
(d)	Section 368(a)(1)Corporate organizations and reorganizationDefinitions relating to corporate reorganizationsReorganizationsIn general.
(e)	Section 721Partners and partnershipsNonrecognition of gain or loss on contribution.
(f)	Section 731Partners and partnershipsExtent of recognition of gain or loss on distribution.

The exemption in WAC 458-61A-212 applies only to transfers that qualify as nonrecognition of gain or loss transactions under the Internal Revenue Code for entity formation, liquidation or dissolution, or reorganization. The exemption in WAC 458-61A-212 does not apply to like-kind exchange transactions under I.R.C. § 1031 because this I.R.C. section does not deal with entity formation, liquidation or dissolution, or reorganization. The exemption in WAC 458-61A-212 does not apply to sales under I.R.C. § 1034Rollover of gain on sale of principal residence, because I.R.C. § 1034 does not deal with entity formation, liquidation or dissolution, or reorganization. WAC 458-61A-212(2)(b).

Transfers of property or cash to a partnership will not be subject to real estate excise tax under this exemption if the transfer is exempt from federal income tax under I.R.C. § 721. For example, A and B are partners in a partnership. In a nontaxable I.R.C. § 721 transaction, C transfers real property to the partnership in exchange for a partnership interest in the partnership. No consideration, other than the partnership interest in the partnership, is given to C in exchange for C's transfer of real property. Because the transfer is...