Comments on proposed regulations under section 1031 of the Internal Revenue Code.

Comments on Proposed Regulations under Section 1031 of the Internal Revenue Code

On April 25, 1990, the Internal Revenue Service issued proposed regulations under section 1031 of the Internal Revenue Code, concerning additional rules for exchanges of personalty and multiple properties. The proposed regulations were published in the Federal Register on April 26, 1990 (55 Fed. Reg. 17635) and in the May 31, 1990, issue of the Internal Revenue Bulletin (1990-21 I.R.B. 9).

For simplicity's sake, the proposed regulations are referred to as the "proposed regulations" and specific provisions are cited as "Prop. Reg. [Section]." References to page numbers are to the proposed regulations (and preamble) as published in the Internal Revenue Bulletin.

BACKGROUND

Tax Executives Institute is the principal association of corporate tax executives in North America. Our nearly 4,500 members represent more than 2,000 of the leading corporations in the United States and Canada. TEI represents a cross-section of the business community, and is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. As a professional association, TEI is firmly committed to maintaining a tax system that works - one that is administrable and with which taxpayers can comply.

Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the tax law relating to the operation of business enterprises. We believe that our diversity and the professional training of our members enable us to bring an important, balanced, and practical perspective to the issues raised by the proposed regulations relating to like-kind exchanges.

1. Prop. Reg. [Section] 1.1031(a)-2(b)(1):

   Exchanges of Personal

   Property

   Prop. Reg. [Section] 1.1031(a)-2(b) provides rules for exchanges of depreciable tangible personal property held for productive use in a trade or business. For this purpose, two items of depreciable tangible personal property are of like kind or like class if both are either (i) within one of the 13 General Business Assets Classes (GBACs) set forth in Prop. Reg. [Section] 1.1031(a)-2(b)(2) or, (ii) in the case of property not within a GBAC, within the same Product Class (PC) under Prop. Reg. [Section] 1.1031(a)-2(b)(3).

   The definition of a GBAC under Prop. Reg. [Section] 1.1031(a)-2(b)(2) is based on asset classes 00.11 through 00.28 and 00.4 of Rev. Proc. 87-56, 1987-2 C.B. 674 (as modified), and is relatively broad in nature. For example, there are wide varieties of office furniture, fixtures, and equipment (asset class 00.11) that would be considered within a like class for purposes of Prop. Reg. [Section] 1.1031(a)-2(b)(i).

   By contrast, subparagraph (3) of the regulation...