Brief Fact Summary. Taxpayer bought land in order to build a new manufacturing plant. After failing to find financing, Taxpayer entered into an arrangement with Prudential Life Insurance wherein they bought the building and leased it back to Taxpayer.
Synopsis of Rule of Law. A like-kind exchange is a reciprocal transfer of property, and a sale is a transfer of property for monetary consideration only.
Facts. Leslie Company, Taxpayer, is a New Jersey corporation involved in the manufacture and distribution of pressure and temperature regulators and instantaneous water heaters. Taxpayer purchased land for a new facility to construct a new manufacturing plant. Unable to find financing for the plant, Taxpayer entered into an agreement with Prudential Life Insurance where Taxpayer would build the plant and Prudential would purchase it from them. Prudential would lease the facility back to Taxpayer. Taxpayer reported a loss on the sale of the property to Prudential. The Commissioner of Internal Revenue did not allow the loss claiming that the sale and leaseback constituted an exchange of like-kind properties. The Tax Court found that the sale was not an exchange.
Issue. Does the sale and leaseback arrangement constitute an exchange of like-kind properties?