Page 104 - Virtual Currencies

12:10 - 7-Feb-2023
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Fileid: … tions/p544/2022/a/xml/cycle03/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Identification requirement. You must identify value of $1,000,000, if the total fair market value If, in accordance with an escrow agreement,
the property to be received within 45 days after of the furniture, laundry machines, and other trust agreement, or exchange agreement, an
the date you transfer the property given up in personal property does not exceed $150,000. exchange facilitator holds exchange funds for
the exchange. This period of time is called the you and keeps some or all of the earnings on
identification period. Any property received dur- Replacement property to be produced. the exchange funds in accordance with the es-
ing the identification period is considered to Gain or loss from a deferred exchange can crow agreement, trust agreement, or exchange
have been identified. qualify for nonrecognition even if the replace- agreement, you will be treated as if you had
If you transfer more than one property (as ment property is not in existence or is being loaned the exchange funds to the exchange fa-
part of the same transaction) and the properties produced at the time you identify it as replace- cilitator. You must include in income any inter-
are transferred on different dates, the identifica- ment property. If you need to know the fair mar- est that you receive and, if the loan is a be-
ket value of the replacement property to identify
tion period and the exchange period begin on low-market loan, you must include in income
the date of the earliest transfer. it, estimate its fair market value as of the date any imputed interest.
you expect to receive it. Exchange funds include relinquished prop-
Identifying replacement property. You erty, cash, or cash equivalent that secures an
must identify the replacement property in a Receipt requirement. The property must be obligation of a transferee to transfer replace-
signed written document and deliver it to the received by the earlier of the following dates. ment property, or proceeds from a transfer of
person obligated to transfer the replacement • The 180th day after the date on which you relinquished property, held in a qualified escrow
property or any other person involved in the ex- transfer the property given up in the ex- account, qualified trust, or other escrow ac-
change other than you or a disqualified person. change. count, trust, or fund in a deferred exchange.
See Disqualified persons, later. You must • The due date, including extensions, for An exchange facilitator is a qualified inter-
clearly describe the replacement property in the your tax return for the tax year in which the mediary, transferee, escrow holder, trustee, or
written document. For example, use the legal transfer of the property given up occurs. other person that holds exchange funds for you
description or street address for real property This period of time is called the exchange pe- in a deferred exchange under the terms of an
and the make, model, and year for a car. In the riod. You must receive substantially the same escrow agreement, trust agreement, or ex-
same manner, you can cancel an identification property that met the identification requirement, change agreement.
of replacement property at any time before the discussed earlier.
end of the identification period. For more information relating to the current
Replacement property produced after
Identifying alternative and multiple identification. In some cases, the replace- taxation of qualified escrow accounts, qualified
properties. You can identify more than one re- ment property may have been produced after trusts, and other escrow accounts, trusts, and
placement property. However, regardless of the you identified it (as described earlier in Re- funds used during deferred exchanges of
number of properties you give up, the maximum placement property to be produced). In that like-kind property, see Treasury Regulations
number of replacement properties you can case, to determine whether the property you re- sections 1.468B-6 and 1.7872-16. If the ex-
identify is: ceived was substantially the same property that change facilitator is a qualified intermediary,
• Three properties regardless of their fair met the identification requirement, do not take see Safe Harbors Against Actual and Construc-
market value; or into account any variations due to usual produc- tive Receipt in Deferred Exchanges, later.
• Any number of properties whose total fair tion changes. Substantial changes in the prop-
market value at the end of the identification erty to be produced, however, will disqualify it. Disqualified persons. A disqualified person is
period is not more than double the total fair If your replacement property is real property a person who is any of the following.
market value, on the date of transfer, of all that had to be produced and it is not completed 1. Your agent at the time of the transaction.
properties you give up. by the date you receive it, it still may qualify as
If, as of the end of the identification period, substantially the same property you identified. It 2. A person who is related to you under the
you have identified more properties than permit- will qualify only if, had it been completed on rules discussed in chapter 2 under Nonde-
ductible loss, substituting “10%” for “50%.”
ted under this rule, the only property that will be time, it would have been considered to be sub-
considered identified is: stantially the same property you identified. It is 3. A person who is related to a person who is
• Any replacement property you received considered to be substantially the same only to your agent at the time of the transaction
before the end of the identification period; the extent it is considered real property under under the rules discussed in chapter 2 un-
and local law. However, any additional production der Nondeductible Loss, substituting
• Any replacement property identified before on the replacement property after you receive it “10%” for “50%.”
the end of the identification period and re- does not qualify as like-kind property. To this
ceived before the end of the exchange pe- extent, the transaction is treated as a taxable For purposes of (1) above, a person who
riod, but only if the fair market value of the exchange of property for services. has acted as your employee, attorney, account-
property is at least 95% of the total fair ant, investment banker or broker, or real estate
market value of all identified replacement Interest income. Generally, in a deferred ex- agent or broker within the 2-year period ending
properties. Fair market value is determined change, if the amount of money or property you on the date of the transfer of the first of the relin-
on the earlier of the date you received the are entitled to receive depends upon the length quished properties is your agent at the time of
property or the last day of the exchange of time between when you transfer the property the transaction. However, solely for purposes of
period. See Receipt requirement, later. given up and when you receive the replacement whether a person is a disqualified person as
your agent, the following services for you are
Disregard incidental property. Do not property, you are treated as being entitled to re- not taken into account.
ceive interest or a growth factor. The interest or
treat property incidental to a larger item of prop- growth factor will be treated as interest, regard- • Services with respect to exchanges of
erty as separate from the larger item when you less of whether it is paid in like-kind property, property intended to qualify for nonrecog-
identify replacement property. Property is inci- money, or unlike property. Include this interest nition of gain or loss as like-kind ex-
dental if it meets both of the following tests. in your gross income according to your method changes.
• If, in a standard commercial transaction, it of accounting. • Routine financial, title insurance, escrow,
is typically transferred with the larger item. If you transferred property in a deferred ex- or trust services by a financial institution, ti-
• The total fair market value of all the inci- change and an exchange facilitator holds ex- tle insurance company, or escrow com-
dental property is not more than 15% of the change funds for you and pays you all the earn- pany.
total fair market value of the larger item of ings on the exchange funds according to an The rule in (3) above does not apply to a
property. escrow agreement, trust agreement, or ex- bank or a bank affiliate if it would otherwise be a
For example, furniture, laundry machines, change agreement, you must take into account disqualified person under the rule in (3) solely
and other miscellaneous items of personal all items of income, deduction, and credit attrib- because it is a member of the same controlled
property will not be treated as separate property utable to the exchange funds. group (as determined under section 267(f) of
from an apartment building with a fair market the Internal Revenue Code, substituting “10%”

Chapter 1 Gain or Loss Page 13