Case Study Of The Gulfstream Case

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2. LONG v. COMMISSIONER, 77 TC 1045, Code Sec(s) 1031.
- This case deals with a similar issue as that addressed in the Gulfstream Case, however it also looks at the tax implications of an exchange in which liabilities are also being exchanged. The courts ruled that the transfer, in general, could qualify for Section 1031 deferment. This was based on the conclusion that the definition of a partnership included joint ventures (which was involved in the exchange), however because unequal amounts of liabilities were exchanged, so of the gain was required to be realized in the year of the exchange. Specifically, it was determined that: "excess of liabilities relieved over liabilities assumed required recognition of gain; basis of partnership interest was increased under Sec. 1031(d) by amount of gain recognized. This increase resulted in property with basis to taxpayer in excess of its fair market value". The taxpayer,
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Unlike the cases presented above, in this case the taxpayer was not trying to utilize section 1031. Specifically, the business (Redwing Casrriers) attempted to separate their trade-ins of equipment for the purchase of new equipment from the sale retailer. In addition, they structured their purchases and trade-ins in such a way that they received the maximum tax benefit. Redwings would have the discount available when purchasing new equipment be applied to the trade in value of the equipment traded in. This resulted in the trade- in equipment incurring gains in excess of depreciation recapture and allowing for the excess to be taxed at the capital gains rate (allowing for capital loss offsetting to occur). In addition, since the new property was not discounted, the basis of the property and the depreciation incurred each year would be inflated. Ultimately, the courts concluded that this could not be separated into two separate sales and was a like-kind exchange, subject to Section 1031 (American Federal Tax Reports ,

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