The IRS has issued a procedure and a ruling that allow greater flexibility in the treatment of Section 1031 like-kind exchanges, which often occur with automotive and leasing programs.

The revenue procedure provides safe harbors with respect to programs involving ongoing multiple exchanges of tangible personal property using a single intermediary. The IRS ruling facilitates, by means of “netting” treatment, deferred like-kind exchanges of properties with liabilities that span two tax years, particularly in partnership settings.

To qualify as a like-kind exchange program, there must be an ongoing program involving 100 or more properties, and the program must also meet numerous characteristics spelled out in the regulations for obtaining safe harbor tax treatment.

The regulations also explain that where a partnership enters into a transaction that qualifies as a deferred like-kind exchange in which the property subject to a liability is transferred in one taxable year while the exchange property is received in the following year, the liabilities may be netted under Internal Revenue Code Section 752.

In these circumstances, any net decrease in a partner’s share of partnership liability is taken into account in the initial tax year, while any net increase in the partnership’s share of partnership liability is taken into account in the second taxable year of the partnership.