Chief Counsel Approves Like-Kind Exchange Program Where Initial Replacement Properties Violated Code Sec. 1031 IRS Chief Counsel, in technical advice, has concluded that a taxpayer’s exchange of properties was tax-free under Code Sec. 1031, even though some properties initially treated as like-kind were later determined to be ineligible. Chief Counsel determined that, contrary to the views of IRS Exam, the taxpayer identified and received other like-kind properties, under its like-kind exchange (LKE) program, within the required time limits for deferred like-kind exchanges. CCH Take Away. Property is like-kind under Code Sec. 1031(a)(3) and Reg. §1.1031(k)-1 if the taxpayer identifies the replacement property within the 45-day identification period, and the taxpayer receives the replacement property within 180 days after relinquishing its own property. Background The taxpayer rented equipment and established an LKE program under Rev. Proc. 2003-39, which applies to an ongoing program involving multiple exchanges of 100 or more properties. During the same year, the taxpayer acquired multiple pieces of equipment that it designated as replacement properties under Code Sec. 1031, and disposed of other pieces of equipment that it designated as relinquished properties. For each transaction, the taxpayer received one replacement property for each property relinquished. The taxpayer identified and matched replacement properties to relinquished properties, and designated the individual pieces of equipment as replacement properties under Code Sec. 1031. Any excess replacement properties that were not needed under the LKE program were capitalized at full cost and amortized. IRS Exam determined that some of the replacement properties were not eligible under Code Sec. 1031 because they were held primarily for sale. The taxpayer indicated that it had other unmatched replacement properties that it acquired with the 45-day identification period. IRS Exam responded that the taxpayer’s matching of ineligible replacement properties was binding and that a later rematch was not permitted. Chief Counsel’s analysis Chief Counsel determined that under Reg. §1.1031(k)-1(c)(1), where multiple replacement properties are received within the 45-day identification period, all the replacement property received during that period will be treated as "identified" as replacement property. The unmatched replacement properties were properly identified because the taxpayer received them under the LKE program before the end of the required period. Reg. §1.1031(k)-1(c)(4) allows a taxpayer to identify multiple and alternative replacement properties in a deferred exchange. The taxpayer properly identified the unmatched replacement properties because they were received within the required 45-day identification period. Since the previously unmatched replacement properties met the requirements of exchange, identification and receipt, Code Sec. 1031 applies and requires nonrecognition treatment.