In PLR 200912004 the IRS concluded that, despite belonging to different asset classes, cars and light-duty trucks are like-kind properties for purposes of IRC Section 1031.
Under Section 1031, depreciable tangible personal property that is held for productive use in a trade or business or for investment, may be exchanged for other depreciable tangible personal property, provided the properties are lof a like-kind or like class.
Personal properties of a "like class" are considered like-kind properties. Properties that fall within the same General Business Asset Class (found at Rev. Proc. 87-56, 1987-2 C.B. 674) or within the two to six digit code of the North American Industry Classification System (NAICS) are deemed to be of a like class.
In the present ruling, Taxpayer is in the business of leasing vehicles: cars, light-duty trucks, and vehicles that share characteristics of both - e.g., sport utility vehicles, crossover vehicles and mini-vans. Taxpayer proposes to combine all of its vehicles into a single exchange group for ease of administration of Taxpayer's LKE program and requests confirmation that the assets will be deemed like-kind to each other. Cars fall within asset class 00.22 and light general purpose trucks fall within asset class 00.241 under Rev. Proc. 87-56 and so are not of a like class.
However, under Treasury Reg. 1.1031(a)-(2)(a), an exchange of like-kind properties may qualify for non-recognition of gain under Section 1031 even though the properties are not of a like class.
In finding that the assets were like-kind, the IRS explained that the assets differed in their grade or quality, but not in their underlying character. The evolution of crossover vehicles, sport utility vehicles and other similar vehicles over the last several decades has significantly reduced the fundamental differences between cars and light-duty trucks. As such, the cars are like-kind to light-duty trucks and other vehicles that share attributes of both cars and light-duty trucks.
If you would like a copy of PLR 200912004, please call us at:
March 2009
