Field Service Advisories (FSAs)

• FSA 199931002 Related Parties April 12, 1999
• FSA 199941005 Personal Property June 10, 1999
• FSA 199951004 Cancellation of Indebtedness January 3, 2000
• FSA 199951006 Goodwill January 3, 2000
• FSA 200137003 (May 10, 2001) Related Party Exchange
• FSA 0203053 Economic Substance

FSA 199931002 Related Parties April 12, 1999: Taxpayer acquired replacement property from a related party. Exchange disqualified under 1031(f)(I).

FSA 199941005 Personal Property June 10, 1999: Personal properties which are otherwise like-kind to each other are not disqualified merely because they are used for different purposes. (Ed. note: See Reg. 1.1031 (a)-1(c) "to be used for a like purpose".)

FSA 199951004 Cancellation of Indebtedness January 3, 2000: Dissolution of join venture between partnership and another entity "was, in substance a sale" and COD income would be produced to the extent the FMV of the property transferred was less than the debt discharged.

FSA 199951006 Goodwill January 3, 2000: In response to Taxpayer's arguments against the validity of req. Section 1.1031(a)-(2) (c) (2), the Service observed that goodwill is a unique asset because the businesses that generate it are, themselves, unique. Despite the enactment of section 197 providing for the amortization of goodwill, the IRS position as of May 21, 2005, continues to be that goodwill or going concern value of different businesses cannot be like-kind.

FSA 200137003 (May 10, 2001) Related Party Exchange: Father and son owned two properties: Partnership A which owned Blackacre and S Corp. B which owned Whiteacre. The entities were related parties. In year 1 they exchanged properties. In year 3, the S Corp. B sold Blackacre. The Service held that Section 1031(f)(4) does not apply where related parties waited two years to dispose of the properties, even though that was their plan from the start. They held that 1031(f)(4) is intended to penalize Taxpayers who try to circumvent the two year holding period, not those who exchange with intent to hold for two years and then transfer. Note the absence of a binding agreement to sell Blackacre during the two year holding period.

FSA 0203053 Economic Substance: Two subsidiaries of Taxpayer engage in mirror sale-leaseback transactions of equipment which is immediately followed by a like-kind exchange of the equipment that results in the equipment being transferred back to Taxpayer's controlled group. The Service found that the transactions lacked economic substance and should be disregarded for federal tax purposes.