No "Basis Shifting" in Related Party Like-Kind Exchange

Abstract

<p>In a late 2006 private letter ruling,<strong>1 </strong>the Internal Revenue Service took the position that, in a like-kind exchange of real property among related parties, there was no “basis shifting” because of the effect of a recent death on the income tax basis of the properties.<strong>2</strong> Thus, the avoidance of federal income tax was not a principal purpose of the exchange or the subsequent disposition of one of the tracts of real property<strong>3 </strong>and the disposition of that tract within the two year period after the exchange did not result in recognition of gain.<strong>4 </strong>To the extent the ruling represents solid authority, it provides a modicum of comfort for those planning a like-kind exchange involving related parties where cashing out is anticipated by one or more of the parties.<strong>5</strong></p>