Law Commons^™

Related Party Like-Kind Exchanges: Teruya Brothers And Beyond, Bradley T. Borden, Kelly E. Alton, Alan S. Lederman

Bradley T. Borden

The Ninth Circuit recently held that the non-tax-avoidance exception of Section 1031(f) generally will be unavailable where the taxpayer defers tax through a related-party exchange and cannot establish that the related party will incur a higher "tax price." This article examines this new addition to the body of law governing related-party exchanges and discusses planning approaches that exist after the ruling.

Considering Tax Expenditures In State Budget Deliberations, Brad Borden

Bradley T. Borden

This is the manuscript of a talk given at a public forum on tax expenditures in Topeka, Kansas. It explains how tax expenditures erode tax bases and diminish the state's ability to raise revenue, and it suggests that states should treat tax expenditures like direct expenditures in budget deliberations. Finally, the talk demonstrates how tax expenditures can be unfair. Although the comments are specific to the state of Kansas, the principles apply to all governments. A video recording of the proceedings is available at http://tinyurl.com/y85j3w8.

Allocations Made In Accordance With Partners' Interests In The Partnership, Brad Borden

Bradley T. Borden

Tax law allocates partnership tax items in accordance with the partners' interests in the partnership if the allocations do not have substantial economic effect. Tax law also uses the partners' interests in the partnership to test whether certain allocations satisfy the test for substantiality. These rules that rely upon partners' interests in a partnership are at the heart of partneship taxation. Nonteless, tax law does a poor job of defining partners' interests in a partnership. This article illustrates the problems that arise because of that inadequate definition. It also recommends a few changes that could help remedy the existing shortcomings.

Like-Kind Exchanges And Qualified Intermediaries, Brad Borden, Paul L.B. Mckenney, David Shechtman

Bradley T. Borden

The economic downturn has depressed the real estate market, a significant component of the section 1031 industry. In its wake, the industry witnessed three major qualified intermediary failures. QI failures deprive exchangers of exchange proceeds and also create potential tax and legal liabilities for exchangers. This article analyzes those potential liablities and also discusses the cause of QI failures and actions that exchangers and QIs may consider to help safeguard exchange proceeds.

Workout-Driven Exchanges, Brad Borden, Todd D. Keator

Bradley T. Borden

Market forces in a depressed real estate market often lead to foreclosures, which may generate taxable gain to the debtor. Some foreclosure sales may qualify for Section 1031 nonrecognition, if the debtor properly structures the disposition. This Article discusses structures that help foreclosure transactions qualify for Section 1031 nonrecogntion. The Article also discusses the application of Section 1038 to recquisitions of exchanger-financed relinquished property.

Open Tenancies-In-Common, Brad Borden

Bradley T. Borden

Tax law (section 1031 in particular) has spawned a new investment vehicle—open tenancies in common. Tax law allows property owners to exchange into like-kind real property tax free, but finding suitable replacement property can be difficult. Real estate syndicators, recognizing a demand for ready-access replacement property, began offering undivided interests in large multi-million-dollar properties to individual investors exchanging out of smaller properties. Those offerings were the first open tenancies in common. Open tenancies in common are distinguished from traditional or close tenancies in common by the size of coowned property, the coowners’ mutual lack of acquaintance, and the separation of …

Aggregate-Plus Theory Of Partnership Taxation, Brad Borden

Bradley T. Borden

This Article presents a theory of partnership taxation. To provide context for the presentation, the Article examines the history and status of partnerships. That examination reveals humans have a natural tendency to form partnerships and partnerships create a significant challenge for lawmakers. The challenge is determining whether partnerships are entities separate from their members or aggregates of the members. After decades of debate and consideration, many lawmakers and commentators now view partnerships as entities. Tax law has not, however, adopted that view. Partnerships are subject to an aggregate tax regime that contains entity components.

Economic theory justifies tax law deviating …

Profits-Only Partnership Interests, Brad Borden

Bradley T. Borden

Profits-only partnership interests grant service-providing partners an interest in the profits of a partnership but not its capital. Such interests are a proverbial double-edged sword: they create economic arrangements needed in business, but provide opportunities for inequitable tax reductions. Business participants make economic decisions to use profits-only partnership interests to reduce agency costs and appropriable rents. The current law, however, empowers business participants to form partnerships that are equivalent to employment arrangements and use profits-only partnership interests to obtain long-term capital gains. Thus, with no economic consequences, they convert ordinary income (taxed at up to thirty-five percent) to long-term capital …

Taxing Shared Economies Of Scale, Brad Borden

Bradley T. Borden

Economies of scale exist if long-run average costs decline as output rises. All else being equal, the decline in average costs should lead to greater profitability, making economies of scale attractive to businesses. Nobel laureate George Stigler recognized that economies of scale should help determine the optimum size of a firm. To obtain economies of scale and optimum firm size, parties may integrate resources or grant access to resources without integrating. Such arrangements create shared economies of scale. Tax law must consider the effects of shared economies of scale and address them. In particular, the varying degrees of scale-sharing raise …

Section 1031 Qualified Intermediaries And The New Economy, Brad Borden

Bradley T. Borden

Industry estimates indicate that, over the past several years, section 1031 qualified intermediaries have lost as much as $700 million of exchange proceeds. Exchangers and their representatives must take steps to help prevent future losses. This article reviews three recent failures and discusses measures that should help reduce the risk of qualified intermediary failure in the new exchange environment. Lawmakers should also consider measures they can take to help prevent such losses in the future.