SECTION 1.1031(a)-2. ADDITIONAL RULES FOR EXCHANGES OF PERSONAL
PROPERTY.
(a) INTRODUCTION. Section 1.1031(a)-1(b) provides that the nonrecognition
rules of section 1031 do not apply to an exchange of one kind or class of
property for property of a different kind or class. This section contains
additional rules for determining whether personal property has been
exchanged for property of a like kind or like class. Personal properties
of a like class are considered to be of a "like kind" for purposes of
section 1031. In addition, an exchange of properties of a like kind may
qualify under section 1031 regardless of whether the properties are also
of a like class. In determining whether exchanged properties are of a like
kind, no inference is to be drawn from the fact that the properties are
not of a like class. Under paragraph (b) of this section, depreciable
tangible personal properties are of a like class if they are either within
the same General Asset Class (as defined in paragraph (b)(2) of this
section) or within the same Product Class (as defined in paragraph (b)(3)
of this section). Paragraph (c) of this section provides rules for
exchanges of intangible personal property and nondepreciable personal
property.
(b) DEPRECIABLE TANGIBLE PERSONAL PROPERTY--
(1) GENERAL RULE. Depreciable tangible personal property is exchanged
for property of a "like kind" under section 1031 if the property is
exchanged for property of a like kind or like class. Depreciable
tangible personal property is of a like class to other depreciable
tangible personal property if the exchanged properties are either
within the same General Asset Class or within the same Product Class.
A single property may not be classified within more than one General
Asset Class or within more than one Product Class. In addition,
property classified within any General Asset Class may not be
classified within a Product Class. A property's General Asset Class
or Product Class is determined as of the date of the exchange.
(2) GENERAL ASSET CLASSES. Except as provided in paragraphs (b)(4)
and (b)(5) of this section, property within a General Asset Class
consists of depreciable tangible personal property described in one
of asset classes 00.11 through 00.28 and 00.4 of Rev. Proc. 87-56,
1987-2 C.B. 674. These General Asset Classes describe types of
depreciable tangible personal property that frequently are used in
many businesses. The General Asset Classes are as follows:
(i) Office furniture, fixtures, and equipment (asset class
00.11),
(ii) Information systems (computers and peripheral equipment)
(asset class 00.12),
(iii) Data handling equipment, except computers (asset class
00.13),
(iv) Airplanes (airframes and engines), except those used in
commercial or contract carrying of passengers or freight, and
all helicopters (airframes and engines) (asset class 00.21),
(v) Automobiles, taxis (asset class 00.22),
(vi) Buses (asset class 00.23),
(vii) Light general purpose trucks (asset class 00.241),
(viii) Heavy general purpose trucks (asset class 00.242),
(ix) Railroad cars and locomotives, except those owned by
railroad transportation companies (asset class 00.25),
(x) Tractor units for use over-the-road (asset class 00.26),
(xi) Trailers and trailer-mounted containers (asset class
00.27),
(xii) Vessels, barges, tugs, and similar water-transportation
equipment, except those used in marine construction (asset class
00.28), and
(xiii) Industrial steam and electric generation and/or
distribution systems (asset class 00.4).
(3) PRODUCT CLASSES. Except as provided in paragraphs (b)(4) and
(b)(5) of this section, property within a Product Class consists of
depreciable tangible personal property that is listed in a 4-digit
product class within Division D of the Standard Industrial
Classification codes, set forth in Executive Office of the President,
Office of Management and Budget, Standard Industrial Classification
Manual (1987) (SIC Manual). Copies of the SIC Manual may be obtained
from the National Technical Information Service, an agency of the
U.S. Department of Commerce. Division D of the SIC Manual contains a
listing of manufactured products and equipment. For this purpose, any
4-digit product class ending in a "9" (i.e., a miscellaneous
category) will not be considered a Product Class. If a property is
listed in more than one product class, the property is treated as
listed in any one of those product classes. A property's 4-digit
product classification is referred to as the property's "SIC Code."
(4) MODIFICATIONS OF REV. PROC. 87-56 AND SIC MANUAL. The asset
classes of Rev. Proc. 87-56 and the product classes of the SIC Manual
may be updated or otherwise modified from time to time. In the event
Rev. Proc. 87-56 is modified, the General Asset Classes will follow
the modification, and the modification will be effective for
exchanges occurring on or after the date the modification is
published in the Internal Revenue Bulletin, unless otherwise
provided. Similarly, in the event the SIC Manual is modified, the
Product Classes will follow the modification, and the modification
will be effective for exchanges occurring on or after the effective
date of the modification. However, taxpayers may rely on the
unmodified SIC Manual for exchanges occurring during the one-year
period following the effective date of the modification. The SIC
Manual generally is modified every five years, in years ending in a 2
or 7 (e.g., 1987 and 1992). The effective date of the modified SIC
Manual is announced in the FEDERAL REGISTER and generally is January
1 of the year the SIC Manual is modified.
(5) MODIFIED CLASSIFICATION THROUGH PUBLISHED GUIDANCE. The
Commissioner may, by guidance published in the Internal Revenue
Bulletin, supplement the guidance provided in this section relating
to classification of properties. For example, the Commissioner may
determine not to follow, in whole or in part, any modification of
Rev. Proc. 87-56 or the SIC Manual. The Commissioner may also
determine that two types of property that are listed in separate
product classes each ending in a "9" are of a like class, or that a
type of property that has a SIC Code is of a like class to a type of
property that does not have a SIC Code.
(6) NO INFERENCE OUTSIDE OF SECTION 1031. The rules provided in this
section concerning the use of Rev. Proc. 87-56 and the SIC Manual are
limited to exchanges under section 1031. No inference is intended
with respect to the classification of property for other purposes,
such as depreciation.
(7) EXAMPLES. The application of this paragraph (b) may be
illustrated by the following examples:
EXAMPLE 1. Taxpayer A transfers a personal computer (asset class
00.12) to B in exchange for a printer (asset class 00.12). With
respect to A, the properties exchanged are within the same
General Asset Class and therefore are of a like class.
EXAMPLE 2. Taxpayer C transfers an airplane (asset class 00.21)
to D in exchange for a heavy general purpose truck (asset class
00.242). The properties exchanged are not of a like class
because they are within different General Asset Classes. Because
each of the properties is within a General Asset Class, the
properties may not be classified within a Product Class. The
airplane and heavy general purpose truck are also not of a like
kind. Therefore, the exchange does not qualify for
nonrecognition of gain or loss under section 1031.
EXAMPLE 3. Taxpayer E transfers a grader to F in exchange for a
scraper. Neither property is within any of the General Asset
Classes, and both properties are within the same Product Class
(SIC Code 3533). With respect to E, therefore, the properties
exchanged are of a like class.
EXAMPLE 4. Taxpayer G transfers a personal computer (asset class
00.12), an airplane (asset class 00.21) and a sanding machine
(SIC Code 3553), to H in exchange for a printer (asset class
00.12), a heavy general purpose truck (asset class 00.242) and a
lathe (SIC Code 3553). The personal computer and the printer are
of a like class because they are within the same General Asset
Class; the sanding machine and the lathe are of a like class
because neither property is within any of the General Asset
Classes and they are within the same Product Class. The airplane
and the heavy general purpose truck are neither within the same
General Asset Class nor within the same Product Class, and are
not of a like kind.
(c) INTANGIBLE PERSONAL PROPERTY AND NONDEPRECIABLE PERSONAL PROPERTY--
(1) GENERAL RULE. An exchange of intangible personal property of
nondepreciable personal property qualifies for nonrecognition of gain
or loss under section 1031 only if the exchanged properties are of a
like kind. No like classes are provided for these properties. Whether
intangible personal property is of a like kind to other intangible
personal property generally depends on the nature or character of the
rights involved (e.g., a patent or a copyright) and also on the
nature or character of the underlying property to which the
intangible personal property relates.
(2) GOODWILL AND GOING CONCERN VALUE. The goodwill or going concern
value of a business is not of a like kind to the goodwill or going
concern value of another business.
(3) EXAMPLES. The application of this paragraph (c) may be
illustrated by the following examples:
EXAMPLE (1). Taxpayer K exchanges a copyright on a novel for a
copyright on a different novel. The properties exchanged are of
a like kind.
EXAMPLE (2). Taxpayer J exchanges a copyright on a novel for a
copyright on a song. The properties exchanged are not of a like
kind.
(d) EFFECTIVE DATE. Section 1.1031(a)-2 is effective for exchanges
occurring on or after April 11, 1991.
[T.D. 8343, 56 FR 14854, Apr. 12, 1991
