IRS Codes and Rulings

The IRS has issued various rulings that directly affect specific issues concerning the 1031 Exchange.

The Delayed Exchange

The Starker Deferred Exchange

A delayed exchange (also referred to as a deferred or “Starker” exchange, Starker v. U.S. 602 F.2d 1341) may be necessary when:

  • You have not yet determined your needs for replacement property and seek a delay in determining what property to accept in exchange
  • You find a customer who wants your property but who has not yet acquired property to turn over to you in exchange
  • You find a property that you want but have not yet found property the other person will be willing to accept in exchange.


Under the like-kind exchange rules (see Treas. Regs. §1.1031(k)-1(b)(e)), you can structure a deferred (non-simultaneous) exchange. In the transaction, you transfer your property to the other party but defer your receipt of replacement property. To qualify, you must meet the following time limits:

  • The property you are to receive must be identified no later than 45 days after your property is transferred. Identification must be made in writing and must clearly describe in appropriate detail the property to be transferred.
  • The actual transfer must occur no later than the earlier of:
    • 180 days after your property is transferred
    • The due date (including extensions) of your tax return for the year in which you gave up your property in the exchange.


You should be particularly careful with this second requirement. If you transfer your property in the exchange late in the year, do not automatically assume you have 180 days to receive the replacement property. For example, if you transfer your property on December 1, and don’t get an extension for filing your tax return, you will have to receive the replacement property in exchange by April 15, which is earlier than the date which is 180 days after the transaction. Filing an extension will give you additional time, but no extensions can be obtained on the 45- or 180-day periods themselves.

Alternative Arrangements

If the time limits outlined above are too restrictive in your case, we may be able to work out alternative arrangements that effectively give the exchanging party more time to come up with the replacement property. These arrangements can involve:

  • Leasing your property to the other party for a period of time instead of transferring it outright
  • Granting the other party an option to buy your property, which could be exercised when the replacement property becomes available
  • Transferring your property to an independent trust or escrow arrangement to be held until the exchange can be made.

Qualified Exchange Accommodation Arrangement

A final possibility is a special transaction that the IRS recognizes: a qualified exchange accommodation arrangement. If you follow IRS rules to the letter, you can arrange to have the property you want to acquire transferred to an accommodation party until the property you will relinquish has been identified. The transaction reverses the timing rule mentioned above by requiring you to identify the property you intend to exchange – instead of the property you plan to receive in the exchange – within 45 days of the date that the replacement property is transferred to the accommodation party. You must follow IRS requirements exactly to qualify for the favorable tax treatment.

Exchanges of Foreign Property

Foreign real property and real property situated in the United States are not considered like-kind per Treasury Reg. §1.1031(h) and will not qualify for tax deferral if foreign property is exchanged for U.S. property or vice versa. However, foreign real property may be exchanged for other foreign real property, and any gain may be deferred under the provisions of Section 1031. This provision is especially important if the foreign country in which the relinquished property is situated does not tax the gain. United States citizens and permanent residents are taxed on their worldwide income regardless of where they are resident for tax purposes. If the foreign country does not tax the gain on the sale of the property, then there will be no foreign tax credit to net against U.S. capital gains tax, and only an exchange will eliminate U.S. tax in the year of the transaction.

Please note that for purposes of the Section 1031 rules, real property situated in the U.S. Virgin Islands is considered property situated in the United States per Private Letter Ruling 9038030.


Vesting Issues

Holding Requirement

Conservative advice recommends that you should hold the property transferred and the property acquired for a substantive period of time. It is generally recommended that you hold the property before and after the exchange for twelve months. However, a six-month holding period was discussed in 124 Front Street, Inc. v. Commissioner, Boise Cascade Corporation, and R.R. 61-119.

Conversion of Personal Property

The actual use of a property at the of the exchange determines if the property is used for personal use, use in a trade or business or for investment (see Heiner v. Tindle, 276 U,S. 582 (1928). In Klarkowski, 385 F. 2d 398 (7th Cir. 1967), the Court recognized that for tax purposes, the nature or character of property may be different at the time of acquisition than at the time of exchange. Therefore, a taxpayer may attempt to convert his residence to an investment or income-producing property prior to an exchange by moving out and renting the property.

The success of this strategy would depend on the length of the rental, the substance of the transaction, the existence of a pre-arranged exchange, and the taxpayer’s complete documentation of their rental efforts (for example, newspaper “for rent” ads, listing for lease, written rental agreements, etc.). How far a taxpayer can go in arranging his transaction to qualify as a tax-deferred exchange under Section 1031 is not clear. However, the courts have held that the mere fact a taxpayer did make such arrangements for tax avoidance purposes is not sufficient to disqualify the exchange. (Halpem v. U.S., Carlton v. U.S., and the Mercantile Trust Company v. Commissioner, 32 BT A 82 (1935).

In Land Dynamics, 78,259 P-H Memo TC (1978), the court found that the mere holding of property for several years does not establish an intention to hold such property for investment purposes. The real problem in these situations is building and retaining sufficient circumstantial evidence to prove the change in holding in a subsequent audit. In spite of the emphasis on the taxpayer’s intent at the time of the transaction, the taxpayer’s activities and the surrounding facts and circumstances, both before and after the exchange, have been clearly examined by the courts. Subjective intent at the time of exchange is difficult to determine, thus, collateral evidence is essential.

In 124 Front Street, Inc. v. Commissioner, 65 T.C. 6 (1975), the taxpayer held the property for approximately six months prior to the successful exchange but collected rents, paid for insurance, incurred expenses for maintenance of the property, and claimed a depreciation deduction on his tax return.

In Boise Cascade Corporation., 74,315 P-H Memo TC (1974), the taxpayer was successful in that the IRS stated that the exchange property was held for the purpose of use in a trade or business despite the fact that it was sold six months after the exchange. In addition to time, the courts have traditionally considered the following factors on a taxpayer-by-taxpayer application:

  • Pre-existing plans and contracts
  • Purpose at the time of acquisition
  • Tax avoidance motives
  • The state of mind of the taxpayer during the holding period


The Safe Harbor of a Deferred Exchange

Qualified Exchange Accommodation Arrangement (QEAA) Safe Harbor

A reverse exchange, in which the replacement property is acquired before the relinquished property is transferred, is not covered by the like-kind exchange regulations and does not qualify as a tax-free exchange. To circumvent that problem, taxpayers use a “parking” arrangement: a replacement property is parked with a third party until the taxpayer transfers the property to be relinquished. Alternatively, the relinquished property is parked with the third party, who holds it until a transferee is identified. These transactions are arranged so that the third party, or the “accommodation party”, is treated as the owner of the replacement or relinquished property for federal income tax purposes. Safe harbor rules in an IRS revenue procedure allow these accommodation transactions to qualify as like-kind exchanges.


QEAA Conditions

Property is considered to be held in a qualified exchange accommodation arrangement (QEAA) if all of the following conditions are satisfied:

  1. An exchange accommodation titleholder must hold qualified indicia of ownership of the property at all times from the date the titleholder acquires the property until the property is transferred as described in (5) below.
  2. When the qualified indicia of ownership of the property are transferred to the titleholder, the taxpayer (the party seeking tax deferral treatment) must have the bona fide intent that the property held by the titleholder represents either replacement property or relinquished property in an exchange that is intended to qualify for non-recognition of gain (in whole or in part) or loss under Section 1031.
  3. After no more than five (5) business days after the qualified indicia of ownership of the property has been transferred to the titleholder, the taxpayer and the titleholder must enter into a written QEAA that provides that:
    • The titleholder is holding the property for the taxpayer’s benefit to facilitate an exchange under Section 1031 and Revenue Procedure 2000-37
    • The taxpayer and the titleholder agree to report the acquisition, holding, and disposition of the property as provided in Rev Proc 2000-37
    • The agreement must specify that the titleholder will be treated as the beneficial owner


Both parties must report the federal income tax attributes of the property on their federal income tax returns in a manner consistent with the agreement. But property will not fail to be treated as being held in a QEAA merely because the accounting, regulatory, or state, local, or foreign tax treatment of the arrangement between the taxpayer and the titleholder is different from the treatment required by the rules at footnote 35 in this paragraph 3.

  1. No more than 45 days after the qualified indicia of ownership of the replacement property have been transferred to the titleholder, the relinquished property must be properly identified, as provided in Section 1.1031(k)-1(c). The taxpayer may also properly identify alternative and multiple properties, as described in Section 1.1031(k)-1(c)(4).

Observation: Section 1.1031(k)-1(c) (footnote 36) requires the identification of the replacement property, not the relinquished property, within 45 days of the transfer of the relinquished property, not within 45 days of the transfer of the replacement property. Presumably, the inversion of these terms in Revenue Procedure 2000-37 is deliberate in that the Rev Proc is intended to enable taxpayers to accomplish a reverse exchange by “parking” the replacement property until they have acquired the property to relinquish in the exchange.

  1. No more than 180 days after qualified indicia of ownership of the property have been transferred to the titleholder, the property must be transferred to the taxpayer as (a) replacement property (either directly or indirectly through a qualified intermediary (defined in Section 1.1031(k)-1(g)(4)) ; or as (b) relinquished property to a person who is not the taxpayer or a disqualified person.
  2. The combined time period that the relinquished property and the replacement property are held in a QEAA must not exceed 180 days.


Multiple Party Exchanges

The typical multi-party exchange arises when one party (let’s call her Ms. Johnson) who owns Hilltop, seeks to exchange it for Valley View, owned by Ms. White. Ms. White, however, wants to sell Valley View rather than exchange it for other realty. A third party, Mr. Fitch, wants to buy Hilltop, but if Ms. Johnson simply sells it to him, she’ll have to recognize her gain on the sale. The transaction can be arranged as follows:

Mr. Fitch buys Valley View from Ms. White. Mr. Fitch then exchanges it with Ms. Johnson for Hilltop. Ms. Johnson should not have to recognize any gain on the sale under the like-kind exchange rules. If Hilltop is worth more than Valley View, Mr. Fitch will have to pay extra consideration in the exchange. If the extra consideration is cash (or other non-like- kind property), Ms. Johnson will have to recognize her gain up to the amount of extra consideration received.

Alternatively, Ms. Johnson could have first directly exchanged Hilltop for Valley View with Ms. White. Ms. White could then sell Hilltop to Mr. Fitch. Again, Ms. Johnson would be able to avoid tax on her gain on Hilltop under the like-kind exchange rules.

The important conclusion to draw from the above example is that you may be able to accomplish a like-kind exchange without having to find an owner of property willing to trade with you directly. If you can more simply find (1) a buyer for your property and (2) property for sale that you seek to acquire, you should be able to structure a like-kind exchange as in the above example.

Please contact us if you would like more information on how the like-kind exchange rules work in specific situations.

Exchanging with a Related Party

A related party includes a member of the exchanger’s family, including but not limited to spouse, brother, sister, parent and child, as well as a corporation in which the exchanger owns more than 50% of the ownership interest, a partnership in which the exchanger owns more than 50% (either directly or indirectly) of the capital or profits of the partnership. [Section 1031(f)(1) and Section 707(b)]

Bona Fide Exchange Between Related Parties

An exchange, if bona fide, can be made between related parties. In R.R. 72-151, the IRS allowed the shareholder of a corporation to trade his property for property held by his wholly-owned corporation and qualify under Section 1031. The taxpayer in Mays v. Campbell, 246 F. Supp. 375 (N.D. Texas 1965) exchanged his property with an unrelated party who in turn sold the property to a corporation controlled by taxpayer’s family and 1031 was held applicable. Likewise, in Coastal Tenninals, Inc. v. U.S., 320 F.2d 333 (4th Cir. 1963), Section 1031 was held to apply where an outsider exchanged property (which he had purchased from a subsidiary corporation) with the parent corporation. (C.f. Boise Cascade Corporation, 74,315 P-H Memo TC (1974).)

Two-Year Limitation

Special rules limit whether certain exchanges made between related parties are nontaxable. These rules affect both direct and indirect exchanges (Section 1031(f)(1)). Section 1031(f) requires gain or loss on an exchange between related persons to be recognized if either the party who transferred or the party who received the property subsequently disposes of the property within two years after the exchange. Any gain or loss realized by a taxpayer because of this rule is deemed to have occurred on the date of the disposition. Thus, the exchanger is not required to amend his return for the year of the original exchange. Basis adjustments are also made as of the date of disposition.

Use by Relatives

In a tax court case, Paul Serdar, TC Memo 1986-504, the taxpayer allowed his son to live in property acquired in an exchange at below-market rent. The IRS took the position that that the property was not held for productive use or for investment purposes. In dicta, the court noted that when a property is acquired for dual purposes such as to provide a residence for relatives and for investment, the property would qualify for Section 1031 treatment if the primary motive is investment, which is a question of fact. Please note that a taxpayer is considered as having used a property for personal use if it is used as a dwelling unit by the taxpayer, by a person with an ownership interest in the property, or by a family member of the owner (Section 280A(d)(2)(A)); however, the taxpayer is not treated as using the property for personal use if it is rented, at a fair market rental, to any person for use as a principal residence (section 280A(d)(3)(A)).

Property Held for Resale

Immediate Resale after Exchange

The George M. Bernard case points out the danger of immediately reselling property acquired in an exchange. In Bernard, Owner held property which he initially desired to sell, but later exchanged for Parcel A, with the condition that the exchange would not take place unless parcel A was sold to a third party. Owner reported the transaction as a Section 1031 Exchange and subsequent sale qualifying for installment sale treatment. The Tax Court held that Parcel A had been held primarily for sale, and therefore did not qualify for Section 1031 treatment. (For other resale examples, see Regals Realty Co. v. Commissioner, supra; Griffin v. Commissioner 49 T.C. 253 (1967), and Land Dynamics, supra.)

Observation: If there is a defective exchange matched with a subsequent sale in the same taxable year, the author questions what “tax damage,” if any, has been done? Perhaps if the sale followed the “exchange” by less than twelve months (or six for the period 6/22/84 to 1/1/88), long-term capital gains treatment (prior to the TRA ’86) might be jeopardized or, in a worst case example, the defective exchange might destroy an installment sale (Section 453).

Nature of Property Holding

The nature of the holding of the property is judged from the point of view of the party to the transaction who is claiming the benefits of Section 1031. Thus, the fact that the taxpayer exchanges qualified property for property held by a dealer will not prevent the use of Section 1031, provided the taxpayer holds the new property for business or investment use. The existence of a dealer in a two-way or multiple exchange, therefore, will not jeopardize Section 1031 treatment for the other party, assuming all other requirements are met. (R.R. 77-297)


The Build-To-Suit Exchange

Section 263A(g)(1) of the Code states that the term “produce” includes construct, build, install, manufacture, develop or improve. In this regard we note that even before these regulations (Section 1.1031(k)-1(e)) were promulgated, courts permitted taxpayers great latitude in structuring exchange transactions under Section 1031 in “build-to- suit” situations. Thus, a taxpayer can locate suitable property to be received in an exchange and can enter into negotiations for the acquisition of such property. Coastal Terminals, Inc. v. United States, 320 F.2d 333, 338 (4th Cir. 1963); Alderson v. Commissioner, 317 F.2d at 790 (9th Cir. 1963); Coupe v. Commissioner, 52 T.C. 394 (1969).

A party can hold transitory ownership of exchange property solely for the purposes of effecting the exchange. Barker v. Commissioner, 74 T.C. 555 (1980). Moreover, the taxpayer can oversee improvements on the land to be acquired, J.H. Baird Publishing Co. v. Commissioner, 39 T.C. 608 (1962), and can even advance money toward the purchase of the property to be acquired by exchange. 124 Front Street Inc. v. Commissioner, 65 T.C. 6 (1975); Biggs v. Commissioner, 632 F.2d 1171 (5th Cir. 1980), aff’g. 69 T.C. 905 (1978).

The IRS has also approved certain exchange transactions in which the replacement property was built to suit the requirements of the exchanging taxpayer. For example, in Rev. Rul. 75-291, 1975-2 C.B. 332, corporation X agreed to exchange its land and factory for land to be purchased by another (Y) and improvements to be constructed thereon. The ruling stated that Y “built the factory solely on its own behalf” and “not as an agent of the taxpayer.” X was allowed non-recognition treatment.

The Starker Reverse Exchange

Safe Harbor

Reverse-Starker transactions, in which the replacement property is acquired before the relinquished property is transferred, are not covered by the like-kind exchange regulations under Section 1.1031(k)-1, and thus do not qualify as tax-free exchanges (Rev Proc 2000-37). To circumvent that problem, taxpayers use parking arrangements, whereby a replacement property is parked with a third party until the taxpayer transfers the property the taxpayer wishes to relinquish, or the relinquished property is parked with the third party, who holds it until a transferee is identified. These transactions are arranged so that the third party or the accommodation party is treated as the owner of the replacement or relinquished property for federal income tax purposes. Safe harbor rules in an IRS revenue procedure allow these accommodation transactions to qualify as like-kind exchanges, although the IRS recognizes that parking transactions outside of these safe harbor rules may still qualify. If these rules are not complied with, however, the safe harbor will not apply and determinations of who is the owner of the property for federal income tax purposes, as well as the proper treatment of any transactions by or between the parties to the exchange, are made without regard to the safe harbor. For example, if the property is not transferred within the time required, the safe harbor rules will not apply.

If property is held in a safe harbor, the IRS will not challenge whether the property qualifies as replacement property or relinquished property under Section 1.1031(k)-1(a) or whether the exchange accommodation titleholder qualifies as the beneficial owner of the property (Rev Proc 2000-37 , Sec. 1, 2000-2 CB 308).

Exchange Accommodation Titleholder of Property Held in a QEAA

For purposes of the safe-harbor rules, the exchange accommodation titleholder (EAT) is a person who is not the taxpayer (i.e. not the person seeking tax deferral for the exchange) or a disqualified person, and is either subject to federal income tax or, if the EAT is treated as a partnership or S corporation for federal income tax purposes, more than 90% of its interests or stock are owned by partners or shareholders who are subject to federal income tax. Services for the taxpayer in connection with a person’s role as the EAT in a qualified exchange accommodation arrangement are not taken into account in determining whether that person or a related person is a disqualified person under Section 1.1031(k)-1(c)(4).

Disqualified Persons

For purposes of the rules relating to eligibility to serve as escrow holder of a qualified escrow account or as a trustee of a qualified trust for purposes of the safe harbor rules, a “disqualified person” is defined as:

  • A person who is the agent of the taxpayer at the time of the transaction
  • Certain persons related to the taxpayer
  • Certain persons related to the taxpayer’s agent


Partnership Issues

Interests in a Partnership

The IRS had attempted to preclude the exchange of partnership interests by promulgating R.R. 78-135. However, the courts consistently rejected this position (Gulfstream Land & Dev. Crop., 71 TC 587 (1979); Arthur E. Long, 77 TC 1045 (1981); and Peter N. Pappas, 78 TC 1078 (1982)). The IRS was more successful with Congress. The Tax Reform Act of 1984 added partnership interests to the list of types of property specifically excluded from exchange treatment (§1031(a)(2)(D)). The provision applies to exchanges closed after March 31, 1984, except for exchanges under a binding contract in effect on March 1, 1984, that remains continuously in effect until the exchange. It appears that the prohibition on exchanges of partnership interests does not apply to exchanges of interests in the same partnership, but only to exchanges of partnership interests in different partnerships (H.R. Report. No. 98-432, 98th Cong, 2d (1984)).

Note: The exclusion of partnership interests from Section 1031 causes concern for co-tenants. While Reg. §1.761-1(a) states that the mere co-ownership of property does not constitute a partnership, co-tenants may be partners if they actively carry on a trade or business. In any event, no partnership return should be filed (if necessary, an election out of partnership treatment under §761(a) should be made) and the co-tenants should individually report their pro rata shares of income and deduction. See also M.H.S. Co., TC Memo 1976-165 for further discussion of co-tenancy versus partnership.

Existing Partnerships

A Section 761(a) might be a good solution for co-tenants who have previously filed partnership tax returns. Section 761(a) permits an “unincorporated organization” to elect out of partnership treatment provided:

  • The organization is used for investment purposes only and not for the active conduct of a trade or business
  • The income of the members of the organization can be determined without computation of partnership income.

Thereafter, an exchange of interests in such an organization should be treated as an exchange of the underlying assets.

 1991 Final Regulations

The Tax Reform Act of 1984 prohibited the exchange of partnership interest. Thus, Section 1031(a)(2)(D) provides that Section 1031(a) does not apply to any exchange of interests in a partnership. The regulations apply this rule whether the partnership interests exchanged are general or limited, or are in the same partnership (Reg. §1.1031(a)-1(a)(1). However, this provision does not affect the conversion of partnership interests in the same partnership under R.R. 84-52.

Note: House and Senate Reports to the ’84 Act state that the rule barring tax-free exchange treatment for partnership interests does not apply to exchange of interests in the same partnership.

The proposed regulations stated that no inference was intended with respect to whether an exchange of an interest in an organization that has elected under §761 to be excluded from the application of subchapter K was eligible for non-recognition of gain or loss under §1031.

Note: Section 761 allows certain investment and operating groups to ‘elect out’ of subchapter K (Sections 701 through 761), which prescribes the manner in which partners are taxed. Taxpayers who elect out are thus no longer subject to those rules. According to the 1984 Act “Blue Book”, the rule barring tax-free exchanges of partnership interests “is not intended to apply to organizations which have elected, under §761(a), not to be subject to the provisions of Subchapter K of the Code; instead, an exchange of interests in such organizations would be treated as an Inspective and the applicability organizations on the basis of those exchanges.” In 1990, the Budget Reconciliation Act amended §1031(a)(2) to provide that an interest in a partnership that has in effect a valid election under §761(a ) to be excluded from the application of all of subchapter K is treated under §1031 as an interest in each of the assets of the partnership and not as an interest in a partnership. The final regulations reflect this amendment to Section 1031.

The amendments to §1031(a)(1) made in the final regulations with respect to exchanges of partnership interest are effective for transfers of property made by taxpayers on or after April 25, 1991.

 Splitting Partners

While the exchange of partnership interests is prohibited (§1031(a)(2)(D), a partnership can exchange property with another partnership, individual, or other entity and still be entitled to non-recognition under §1031. However, a frequent problem is when one or more partners want to be cashed out as part of an exchange by the partnership. Effecting such a division may be tried, but it is unclear whether the IRS or the courts will uphold it.

Historically, the IRS has required the taxpayer to hold both the property put into the exchange and the property taken out of the exchange for the qualified purposes (R.R. 75-291; R.R. 75-292 & R.R. 77-337). Implicit in this requirement is that the taxpayer must go in and out of the exchange as the same taxpayer or entity. However, some cases have challenged this position. Traditionally, a taxpayer could not go into the exchange as an individual and come out as a corporation, partnership, trust, estate or other separate entity.

LLC Issues

A single-member limited liability company (LLC) may be a desirable form of ownership for both real property and tenants-in-common interests. In most cases, a LLC will limit an investor’s exposure to creditors and litigants to the equity in the property and thereby shield personal assets. Consequently, lenders will often insist on a loan covenant requiring that a property be held in a limited liability entity.

An LLC is a pass-through entity for federal and state income tax purposes with no tax at the entity level and net income passing through the entity to the owner’s tax return (schedule E for individuals). The single member LLC is not disqualified as one of the enumerated exclusions in IRC §1031(a)(2), as is a partnership, because the single member LLC is disregarded by the IRS as an entity separate from the taxpayer. Other pass-through entities which are disregarded by the IRS are a Massachusetts nominee trust, a Delaware business trust, an Illinois land trust, and grantor trust. Please note that not all states allow single member LLC’s.

The LLC (or disregarded entity) is one of the few exceptions to the rule that the taxpayer entity that sells the relinquished property must be the same entity to purchase the replacement property. The exception, found in Treasury Reg. §301.7701-(3)(b)(1), allows the single member LLC that takes title to the property to be ignored for tax purposes and treats the individual or entity owning the LLC as the direct owner. Furthermore, in Letter Ruling 200131014, a taxpayer acquired title to replacement property and then deeded the property over to a single member LLC in which the taxpayer was the sole member.

An entity may elect a classification change by filing Form 8832 under the “check the box” rules. Accordingly, an entity with only one owner may elect to be treated as either a disregarded entity or as a corporation, and an entity with two or more owners may be classified either as a partnership or as a corporation. If no election is made, the single-member entity will automatically be treated as a disregarded entity. Thus, a taxpayer may take title to replacement property in the form of an LLC to satisfy loan requirements and not be in danger of the exchange being disqualified for Section 1031 treatment. A classification election may be effective up to 75 days prior to, or 12 months after the date the election is filed. An additional election may not be made within 60 months of the effective date of the previous election.

A two-member LLC was permitted to receive title replacement property and enjoy a tax-deferred exchange when the taxpayer and the taxpayer’s wholly owned corporation were the two members of the LLC. In this case, the lender was a board member of the corporation in order to protect the lender’s interest by preventing the corporation from ever filing for bankruptcy. The IRS disregarded the two-member LLC similar to a single-member entity and noted that the corporation did not have rights or risks regarding profits, losses or management of the LLC.



Examples used are for hypothetical purposes only and do not indicate suitability for one particular investor.