26 CFR 1.1031(a)-1: Property held for productive use in trade or business
or for investment.
(Also Sections 351, 358, 362; 1.351-1, 1.358-1, 1.362-1.)

	Exchange of business property; prearranged immediate transfer. The
prearranged transfer by an individual of land and buildings used in his
trade or business to an unrelated corporation in exchange for land and an
office building and, immediately thereafter, the transfer of such land and
office building to the individual's newly created corporation, in a
transaction that qualified under section 351 of the Code, does not qualify
as an exchange under the nonrecognition of gain or loss provisions of
section 1031(a).


REV. RUL. 75-292

	Advice has been requested whether the exchange of property described
below qualifies under the provisions of section 1031 of the Internal
Revenue Code of 1954.

	A, an individual, in a prearranged transaction, transferred land and
buildings used in A's trade or business to W, an unrelated corporation, in
exchange for land and an office building owned by W and used in its trade
or business. Immediately thereafter, A transferred the land and office
building to Y, a corporation created by A, in exchange for the stock of Y
in a transaction that qualified under section 351 of the Code. W used the
land and buildings received from A in its trade or business.

	Section 358(a) of the Code provides, in part, that in the case of an
exchange to which section 351, 354, 355, 356, 361, or 371(b) applies, the
basis of the property permitted to be received under these sections
without the recognition of gain or loss shall be the same as that of the
property exchanged with certain specified adjustments.

	Section 362(a) of the Code provides, in part, that the basis of
property acquired in a transaction to which section 351 applies will be
the same as it would be in the hands of the transferor, increased in the
amount of gain recognized to the transferor on such transfer.

	Section 1031(a) of the Code provides, in part, that no gain or loss
shall be recognized if property held for productive use in trade or
business or for investment (not including stock in trade or other property
held primarily for sale) is exchanged solely for property of a like kind
to be held either for productive use in trade or business or for
investment.

	A did not exchange the land and buildings for property to be held
either for productive use in trade or business or for investment. The
property he received from W was to be transferred to Y and was not to be
held by A.

	Accordingly, under the facts of the instant case, the exchange of land
and buildings by A for land and an office building owned by W does not
qualify for nonrecognition of gain or loss under section 1031(a) of the
Code with respect to A. Further, since the land and buildings were assets
used in A's trade or business, any gain or loss resulting from the
exchange will be subject to the provisions of sections 1231 and section
1250, if applicable. The basis to A of the land and office building is
their fair market value and, pursuant to section 362(a), Y's basis in the
land and office building is the same as A's basis therein. A's basis in
the Y stock is the same as A's basis in the land and office building
immediately before the transfer. See section 358(a).

	With respect to W, the exchange qualifies as an exchange of properties
held for productive use in trade or business or for investment under the
nonrecognition of gain or loss provisions of section 1031(a) of the Code.