• After reviewing the scenario, explore the key exceptions that would prevent taxpayers from deferring the tax liability on inherited property and like-kind exchanges. Identify at least two (2) types of property that are not considered like-kind exchanges, and speculate on the reasons why they do not meet the requirements for consideration. Defend your position.

From the first quest we are asked to reviewing the scenario, explore the key exceptions that would prevent taxpayers from deferring the tax liability on inherited property and like-kind exchanges. Identify at least two (2) types of property that are not considered like-kind exchanges, and speculate on the reasons why they do not meet the requirements for consideration. Defend your position.
One key exception that would prevent tax payer from deferring the tax liability is for that tax not to identify the replacement property within 45 days of the transfer of like-kind property, another exception is that the Tax Payer did not receive the replacement property within the 180 days when the like- kind Property.
Some Property that are not considered as like- kind Property are Real property located in the United States and real property located outside the United States are not considered like-kind property under the like-kind exchange rules. If you exchange foreign real property for property located in the United States, your gain or loss on the exchange is recognized. Foreign real property is real property not located in a state or the District of Columbia. Also, an exchange of personal property for real property does not qualify as a like-kind exchange. For example, an exchange of a piece of machinery for a store building does not qualify. Also, the exchange of livestock of different sexes does not qualify. Personal property must be of a like kind and class.
• From the e-Activity, determine at least three (3) conditions that would prevent a like-kind exchange classification, and speculate on the type of abuses the IRS is attempting to remedy with such a restriction(s). Defend your position
In the second question we are asked to determine at least three (3) conditions that would prevent a like-kind exchange classification, and speculate on the type of abuses the IRS is attempting to remedy with such a restriction(s). Defend your position.
There are several conditions that could prevent like – kind classification some of these condition are:
(i) Exchanging foreign real estate for real estate located in the US does not qualify. The only potential abuse I can think of here that the IRS is trying to stop would involve fraud around real estate that cannot be easily verified. Property in the US can easily be identified and verified that it exists along with the type of property. Foreign real estate may not be easily verified
(ii) An exchange of personal property for real property does not qualify as a like-kind exchange. For example, an exchange of a piece of machinery for a store building does not qualify. Also, the exchange of livestock of different sexes does not qualify
(iii) Property used for personal purposes. This is specifically identified to keep individual tax payers from avoiding gains on sale of personal property like autos or boats
The IRS is studying reports and compliance issues regarding like-kind exchanges of property under IRC section 1031. The move comes in response to a September report by the Treasury Inspector General for Tax Administration that faulted the IRS for what it called little oversight of the method for deferring capital gains tax