Question

A owns all of the stock of T, the only asset of which is acreage that had been used as one of the last surviving drive-in theatres, with an adjusted basis of $80,000 and a fair market value of $150,000. A’s basis in the T stock is $50,000. Y, a publicly held grocery chain, wants to acquire the property for a store site. Y is willing to give either its voting common stock worth $150,000 in exchange for the property in a taxable transaction or its stock worth $130,000 in exchange for the property or for the stock of T in a transaction that will be tax-free to A and T. (1) Can A void gain recognition by a like kind exchange of T stock for Y stock under § 1031? Under any others section? If Y offers to exchange one of its publicly traded bonds for the T stock, should A accept the offer? Why is Y willing to give only $130,000 worth of stock in a tax-free exchange?

Answer 1

No, exchange of stock does not qualify under section 1031. Section 1031 is applicable on like kind exchage of real property held for productive use in trade or business or for investment.

If Y offers to exchange publicly traded bonds for T' stock, A should accept the offer as he can held these bonds for investment under section 1031 and deferred tax .

Y is willing to pay $130000 worth of stock in exchange of drive in theatres adjusted basis $80000 and A's basis in T'stock worth $50000