Code Sec. 1031


26 CFR 1.1031(a)-1: Property held for productive use in trade or business
or for investment.

	Exchange of similar businesses under section 1031 of the Code. The
transfer of the assets of a business in exchange for the assets of a
similar business cannot be treated as an exchange of a single property for
another single property under section 1031 of the Code. Rev. Ruls. 57-365
and 85-135 clarified.


REV. RUL. 89-121

ISSUE

	Should the exchange of the assets of a business for the assets of a
similar business be treated as an exchange of a single property for
another single property in applying the provisions of section 1031 of the
Internal Revenue Code?


FACTS

	The facts are the same as those set forth in Rev. Rul. 85-135, 1985-2
C.B. 181. Rev. Rul. 85-135 concerns the application of sections 1031,
1033, and 1071 of the Code to the exchange of the assets of television
stations. Under the facts of that revenue ruling, X corporation owned
television stations K and L. Y corporation owned television station H. To
diversify their media markets and to comply with the Federal
Communications Commission's cross-ownership policies, X exchanged with Y
the assets of K and L for the assets of H. The assets exchanged did not
include property described in section 1031(a)(2) of the Code (i.e., stock
in trade or other property held primarily for sale, stocks, bonds, notes,
choses in action, interests in a partnership, certificates of trust or
beneficial interest, other securities, or evidences of indebtedness or
interest).


LAW AND ANALYSIS

	Section 1031(a) of the Code provides that no gain or loss shall be
recognized if property held for productive use in a trade or business or
for investment (with certain exceptions not relevant here) is exchanged
solely for property of a like kind to be held either for productive use in
a trade or business or for investment.

	Rev. Rul. 85-135 holds, in part, that X and Y each received property of
a like kind to that transferred so that both X and Y qualify for
nonrecognition of gain or loss on the exchange pursuant to section 1031(a)
of the Code. In so holding, Rev. Rul. 85-135 fails to address the manner
in which like-kind property is determined in the exchange. In Rev. Rul.
72-151, 1972-1 C.B. 225, the Service held that, when an exchange involves
multiple assets, the fact that the assets in the aggregate comprise a
business or an integrated economic investment does not cause the exchange
to be treated as a disposition of a single property for purposes of
section 1031. Rather, an analysis is required of the underlying assets
involved in the exchange. See Rev. Rul. 55-79, 1955-1 C.B. 370.


HOLDING

	X's transfer of the assets of K and L in exchange for Y's transfer of
the assets of H cannot be treated as an exchange of a single property for
another single property in applying the provisions of section 1031 of the
Code. Rather, the determination of whether (or the extent to which)
section 1031 applies to an exchange of the assets of one business for the
assets of another business requires an analysis of the underlying assets
exchanged.


EFFECT ON OTHER REVENUE RULINGS

	This revenue ruling clarifies Rev. Rul. 85-135 regarding the
determination of like-kind property in an exchange of multiple assets
under section 1031 of the Code. This revenue ruling similarly clarifies
Rev. Rul. 57-365, 1957-2 C.B. 521, which involves the exchange of the
assets of one telephone company for the similar assets of another
telephone company, and holds that the exchange of the assets of one
business for identical assets of another will be considered an exchange of
property of a like kind within the scope of section 1031 of the Code.

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