VIP Industries Inc. & Subsidiaries v. Comr., T.C. Memo. 2013-157

(petitioner transferred leasehold interest in real estate for fee interest in real estate in purported I.R.C. Sec. 1031 deferred gain exchange transaction; Treas. Reg. Sec. 1.1031(a)-1(c) authorizes exchanges of leasehold interest for fee interest if the leasehold interest is of at least 30 years; petitioner's ground lease entered into in 1993 with original term of 33 years and was not renewable or extendable; petitioner operated motel on property until 2006 then sold leasehold interest to investment firm and parked proceeds with qualified intermediary at time when 21 years remained on ground lease; petitioner held two replacement properties for use in trade or business and reported recognized gain of $2,104,632 (cash and debt relief actually received in transaction) on realized gain of $4,320,618; IRS denied gain deferral on basis that leasehold interest not "like-kind" to fee interests received where less than 30 years remained on interest at time transaction entered into; case decided on past precedent and not on basis of Treas. Reg. at issue, so uncertainty remains as to whether leasehold interests with less 30 years are categorically unqualified for I.R.C. Sec. 1031 treatment per the regulation). 

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