The hazards with related party exchanges under the like-kind exchange rules1 are well-known. If, within two years of a like-kind exchange of property with a related person, the related person disposes of the property or the taxpayer disposes of the property, the gain is recognized.2 The like-kind exchange rules recognize three exceptions to the two-year disposition rule – (1) dispositions involving the death of the taxpayer or the related person; (2) dispositions involving a compulsory or involuntary conversion; and (3) where the Internal Revenue Service is satisfied that avoidance of federal income tax is not a principal purpose of the transaction.3 If a transaction is a related party exchange, the Form 8824 must be filed for the two years following the year of the exchange.
Harl, Neil E.
""Cashing Out" with Related Party Exchanges,"
Agricultural Law Digest: Vol. 16
, Article 1.
Available at: http://lib.dr.iastate.edu/aglawdigest/vol16/iss24/1