IRS Guidance and 1031 exchanges

Many times in this blog, we refer to different Internal Revenue Service publications that provide guidance on issues involving real estate and 1031 exchanges. The IRS provides a number of publications and written correspondence that provide guidance. These documents are essentially a translation of tax laws that Congress enacts. we often refer to these when consulting clients on 1031 exchanges. I've listed the top 5IRS publications we use - starting at the highest and moving down according to their "rank".

Regulation
Regulations are the highest form of guidance to new legislation. They are are issued by the IRS and Treasury to also address issues that arise with respect to existing Internal Revenue Code sections. Regulations interpret and give directions on complying with the law.

Revenue Ruling
A Revenue Ruling generally states an IRS position. It is an official interpretation of the Regulation Code or statute. It is, basically, how the IRS applies the law.

Revenue Procedure
A Revenue Procedure is an official statement affecting the duties or rights of taxpayers under the Code, statute, and/or regulations. A Revenue Procedure might provide return filing or other instructions concerning an IRS position. It may also provide a "safe harbor" umbrella with which a taxpayer can structure and complete a transaction.

Private Letter Ruling
A Private Letter Ruling, or PLR, is a statement written to a specific taxpayer that interprets/applies tax law to that taxpayer's specific set of facts. It is issued to establish the tax consequences of a particular transaction before the transaction is completed or before the filing of a taxpayer's return. To receive a PLR, a taxpayer must request a written response from the IRS. It is binding to that taxpayer's circumstances only if the taxpayer is fully and accurately describing the proposed transaction in the request and carries it out as described. It should be noted that while a PLR may provide guidance, it can not be relied on as precedent by other taxpayers or IRS personnel.

Technical Advice Memorandum
A Technical Advice Memorandum, or TAM, is guidance furnished by the Office of Chief Counsel in response to technical or procedural questions that develop during a proceeding. A request for a TAM generally comes from an exam of a taxpayer's return or a taxpayer's claim for a refund or credit. TAMs are issued on closed transactions and interpret the application of tax laws, treaties, regulations, Revenue Rulings or other precedents. The advice is deemed a final position of the IRS, but only with respect to the specific issue in the specific case in which the advice is issued.

There are, of course, many other additional publications and pronouncements that provide taxpayer guidance. Robert F. Reilly, CPA, CFA - in a two part article for the AICPA's Practicing CPA, detailed a number of these various publications. Part I covers publications presenting official IRS positions, IRS instructional publications, and announcements, notices, and news releases. While Part II covers advance rulings and determinations as well as new types of IRS pronouncements.

When seeking tax and litigation guidance, tax professionals (CPAs and attorneys) first consider statutory authority. When that is insufficient, they look to these official publications of the IRS as well as judicial precedent (Tax Court rulings)regarding the specific matter.

With respect to 1031 exchanges, your Qualified Intermediary should be monitoring various tax law updates and publications to have the most current weapons to provide you in your arsenal. 1031 Corporation Exchange Professionals has a full time CPA on staff and retains expert tax and real estate attorneys that constantly monitor and update like-kind exchange strategy. While we do not provide tax or legal advice, we can consult with you and your tax professionals and provide guidance as to the proper IRS publications and court case precedent in reviewing your individual exchange facts and circumstances. Further, this consultation is provided as a part of our services and no fee is paid unless an exchange is initiated.