Mr. Tucker owns investment land ($690,000 FMV AND $228,000 adjusted basis) that he is interested in selling. Several prospective purchasers have offered to pay cash, but Mr. Tucker wants to avoid recognizing his entire gain in the year of sale. Accordingly, he is considering selling the land to the Tucker Family Corporation in return for a 20-year, 9 percent corporate debt obligation. The corporation could then sell the land to an unrelated party for cash.
1. Will Mr. Tucker's strategy be effective in deferring gain recognition on sale of the land?
2. List any tax principles used in your analysis.
3. Assess the likelihood that the IRS will challenge your position (state the likelihood of challenge in terms of a percentage).
? Will Mr. Tucker's strategy be effective in deferring gain recognition on sale of the land?
Yes, it could be.
(1) Consider the appropriate sections of the Tax code:
Section 1001 of the Internal Revenue Code (Code) provides rules for determining the amount of gain or loss recognized. Gain from the sale or other disposition of property equals the excess of the amount realized there from over the adjusted basis of the property; loss from the sale or other disposition of property equals the excess of the adjusted basis of the property over the amount realized. Section 1.1001-1(a) of the Income Tax Regulations provides further that the exchange of property for other property differing materially either in kind or in extent is treated as income or as loss sustained.
Under section 1001(b), the amount realized from the sale or other disposition of property is the sum of any money received plus the fair market value of any property (other than money) received. Except as otherwise provided in the Code, the entire amount of gain or loss on the ...
This solution answers three taxation questions, addressing effective strategy, tax principles and IRS challenges.