Code Sec. 1031


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

	Direct transfers of like-kind property. X's transfer of property to Y,
in exchange for property of a like kind, qualifies as to X for
nonrecognition of gain or loss on the exchange under section 1031 of the
Code even though legal title to the property received by X is never held
by Y.


REV. RUL. 90-34

ISSUE

	If X transfers property to Y in exchange for property of a like kind,
may the exchange as to X qualify for nonrecognition of gain or loss under
section 1031 of the Internal Revenue Code even though legal title to the
property received by X is never held by Y?


FACTS

	X and Y are unrelated persons. X files its U.S. income tax return on a
calendar year basis. On May 14, 1989, X and Y enter into a contract that
requires X to transfer Blackacre to Y and Y to transfer to X property of a
like kind with the same fair market value. Blackacre, unencumbered real
property, has been held by X for productive use in its trade or business
and has a fair market value of $1,000,000. Under the contract, X is
required to locate and identify property with a fair market value of
$1,000,000 that is of a like kind to Blackacre within 45 days of X's
transfer of Blackacre to Y (the "identification period"), and Y is
required to purchase and transfer the identified property to X before the
earlier of 180 days from the transfer of Blackacre or the due date
(including extensions) for X's U.S. income tax return for the taxable year
in which X's transfer of Blackacre to Y occurs (the "exchange period"). If
X fails to identify the property to be received in the transaction before
the end of the identification period or Y fails to purchase and transfer
such property to X before the end of the exchange period, Y is required to
pay $1,000,000 to X. Neither X nor Y contracts to exchange Blackacre with
any other party.

	On May 23, 1989, X transfers Blackacre to Y. On June 1, 1989, X
properly identifies Whiteacre as the property to be received. Whiteacre,
owned by Z, a person unrelated to X, is unencumbered real property that
has a fair market value of $1,000,000 and is of a like kind to Blackacre.
On July 10, 1989, Y purchases Whiteacre from Z, and, at Y's direction, Z
transfers legal title to Whiteacre directly to X before the end of the
exchange period. X, thereafter, holds Whiteacre for productive use in its
trade or business.


LAW AND ANALYSIS

	Under section 1031(a)(1) of the Code, no gain or loss is recognized on
the exchange of property held for productive use in a trade or business or
for investment if such property is exchanged solely for property of like
kind that is to be held either for productive use in a trade or business
or for investment.

	Section 1031(a)(3) of the Code provides that any property received by a
taxpayer will be treated as property which is not like-kind property if
(A) such property is not identified as property to be received in the
exchange on or before the day which is 45 days after the date on which the
taxpayer transfers the property relinquished in the exchange, or (B) such
property is received after the earlier of (i) the day which is 180 days
after the date on which the taxpayer transfers the property relinquished
in the exchange, or (ii) the due date (including extensions) for the
taxpayer's federal income tax return for the taxable year in which the
transfer of the relinquished property occurs.

	If Z had actually transferred legal title to Whiteacre to Y and Y had
then transferred legal title to Whiteacre to X, the exchange of Whiteacre
for Blackacre, as to X, would clearly qualify for nonrecognition of gain
or loss under section 1031(a) of the Code. However, section 1031(a) does
not require that Y hold legal title to Whiteacre, but merely that X
receive solely property of a like kind to the property transferred in
order for the exchange to qualify for nonrecognition of gain or loss.
Therefore, the failure of Y to acquire legal title to Whiteacre does not
disqualify X from nonrecognition of gain or loss under section 1031(a) on
the transfer of Blackacre to Y in exchange for Whiteacre.


HOLDING

	X's transfer of property to Y, in exchange for property of a like kind,
qualifies as to X for nonrecognition of gain or loss on the exchange under
section 1031 of the Code even though legal title to the property received
by X is never held by Y.

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