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.
Congress was primarily concerned with the inequity, in the case of an exchange, of forcing a taxpayer to recognize a paper gain which was still tied up in a continuing investment of the same sort.
View Full Point of LawIssue. Does the sale and leaseback arrangement constitute an exchange of like-kind properties?
Held. Circuit Judge Garth issued the opinion for the United States Third Court of Appeals in affirming the Tax Court and holding that the arrangement was a sale and not a like-kind exchange.
Discussion. The Court of Appeals found that this was a transfer of property for monetary consideration only. The rent charged was at fair market rates, there was not compensation for the leasehold interest in the event of condemnation, and there was not substantial right of control over the property for the Taxpayer.