Lineal Descendant Is Not a Qualified Intermediary for Tax Deferred Exchange Purposes.

The petitioner bought a property for $488,000 and later divorced his wife.  The wife gave up all of her rights in the property in exchange for $500,000.  After the petitioner remarried and divorced again, he paid $80,000 to the second wife in release of all claims she might have against him.  The petitioner then sold the property for $2,250,000 and two weeks later bought another property for $1,430,000 and claimed that the transactions qualified as an I.R.C. Sec. 1031 exchange.  He also maintained that his basis in the initial tract was $1,068,000 ($488,000 + $500,000 + $80,000).  The petitioner used his attorney-son as the qualified intermediary for the deferred (non-simultaneous) exchange.  The court noted that Treas. Reg. Sec. 1.1031(k)-(3) explicitly barred family members, including ancestors and lineal descendants from being a qualified intermediary.  The court also determined that the monetary payments to his former spouses were gifts in accordance with I.R.C. Sec. 1041(b)(1) as a payment incident to a divorce, and that the petitioner could not increase his basis by the amount of the transfers.  Blangiardo v. Comr., T.C. Memo. 2014-110.   

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