In a technical advice memorandum (TAM 201437012), the IRS determined that if
certain properties that were previously matched as replacement
property under Section 1031 are later determined to be ineligible
as replacement properties, other eligible replacement properties
that were identified and acquired in a timely way, but not reported
as matched, qualified as replacement properties.
Under the facts of the TAM, the taxpayer's equipment rental
business established a Section 1031 like-kind exchange program (LKE
program) as permitted under Rev. Proc. 2003-39. The revenue
procedure sets forth safe harbors to assist taxpayers in
administering high-volume LKE programs. During an IRS audit, the
exam team determined that some of the taxpayer's replacement
properties weren't eligible for exchange under Section 1031
because they were held primarily for sale, rather than for
productive use in a trade or business or for investment.
