Code Secs. 1031, 333, 334

26 CFR 1.1031(a)-1: Property held for productive use in trade or business
or investment.
(Also Sections 333, 334; 1.333-1, 1.334-1.)

	Exchange of property; prearranged immediate transfer. The individual's
prearranged transfer of a shopping center, received as the only asset from
the liquidation of the individual's wholly owned corporation and
immediately exchanged for like kind property held by an unrelated party,
does not qualify for nonrecognition of gain or loss under section 1031 of
the Code.

REV. RUL. 77-337

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

	An individual taxpayer, A, was the sole owner of the stock of
corporation X. X's only asset was a shopping center. A liquidated X
pursuant to section 333 of the Code and, as a result, acquired the
shopping center. Immediately following the liquidation, in a prearranged
plan, A transferred the shopping center in exchange for property of a like
kind owned by B, an unrelated party.

	Section 333 of the Code provides, in general, that upon the liquidation
of a corporation under certain specified conditions, the amount of gain
recognized by a qualified electing noncorporate shareholder is computed on
each share owned by the shareholder and each share's gain is limited to
the greater of the share's ratable share of the corporation's earnings and
profits accumulated after February 28, 1913, or the share's ratable share
of the sum of the money received by the shareholder plus the fair market
value of stock or securities so received that were acquired by the
distributing corporation after December 31, 1953. See section 1.333-4(b)
of the Income Tax Regulations. In the case of a qualified electing
noncorporate shareholder, that part of the recognized gain on a share of
stock that is not in excess of the ratable share of accumulated earnings
and profits is taxed as a dividend and the remainder of the gain that is
recognized is treated as a capital gain. Section 1.333-4(c).

	Section 334(c) of the Code provides that the basis of assets (other
than money) received in a liquidation to which section 333 applies shall
be the same as the shareholder's basis in the stock decreased by money
received and increased by gain recognized under section 333 and the amount
of unsecured liabilities assumed by the shareholder. See section 1.334-2
of the regulations.

	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.

	Section 1223(1) of the Code provides, in part, that in determining the
period for which the taxpayer has held property received in an exchange,
there shall be included the period for which the taxpayer held the
property exchanged if the property received has, for the purpose of
determining gain or loss from the sale or exchange, the same basis in
whole or in part in the taxpayer's hands as the property exchanged.

	When property is received by a shareholder in the complete liquidation
of a corporation and is thus treated as received in full payment in
exchange for stock of the corporation, the period for which the taxpayer
holds the property received in the liquidation includes the period for
which the taxpayer held the stock of the liquidating corporation. See Rev.
Rul 74-522, 1974-2 C.B. 271.

	In Rev. Rul. 75-292, 1975-2 C.B. 333, an individual taxpayer, in a
prearranged transaction transferred land and buildings used in the
taxpayer's trade or business to an unrelated corporation in exchange for
land and an office building owned by the corporation and used in its trade
or business. Immediately thereafter, the individual taxpayer transferred
the land and office building to the individual's newly created
corporation. Rev. Rul. 75-292 holds, in part, that the exchange does not
qualify for nonrecognition of gain or loss under section 1031(a) of the
Code with respect to the individual taxpayer, because the individual
taxpayer did not exchange the land and buildings for property to be held
either for productive use in trade or business or for investment. The
newly created corporation's eventual productive use of the land and office
building in trade or business is not attributable to its sole shareholder.

	The proposed transaction between A and B was a prearranged plan whereby
X was liquidated to facilitate a further exchange between A and B of their
respective properties. The productive use of the shopping center by X
prior to the liquidation cannot be attributed to A and, hence, A did not
hold an interest in the shopping center for productive use in trade or
business or for investment. Compare Rev. Rul. 75-292.

	Accordingly, A's exchange of the shopping center for B's property does
not qualify for nonrecognition of gain or loss under section 1031(a) of
the Code.

	Any gain or loss resulting from the exchange will be recognized to A to
the extent of the difference between A's basis in the shopping center
acquired as a result of the liquidation as determined pursuant to section
334(c) of the Code and the regulations thereunder, and the fair market
value of B's property at the time of the exchange.

	Pursuant to section 1223(1) of the Code and Rev. Rul. 74-522, the
holding period of the shopping center acquired by A at the time of
liquidation includes the period for which A held the stock in X.