Tax Season Issues
According to Regulation §1.1245-2(b), a taxpayer is generally
required to report all gains or losses on the disposition of capital
assets, including the transactions giving rise to capital gains or
losses in a separate computation on the tax return (Reg.
§1.1202-1(a)). However, there is no statutory authority that
requires the reporting of a full tax deferred exchange. In any
event it may be wise planning to attach a schedule to report a
questionable exchange to start the statute of limitations running on
Schedule D & Form 4797
An exchange of like-kind property may be reported on Schedule D or on
Form 4797, whichever applies. The instructions to Schedule D (Form
1040) state that all exchanges must be reported. The instructions apply
to even fully tax-deferred exchanges. Thus, while again there is
no statutory authority for this instruction, it does present a dilemma.
Those that are more aggressive in their tax compliance will probably
continue to report as little as possible. If your exchange is
non-taxable what penalty can the IRS assert at a later date?
Conservative advisors such as ourselves will probably recommend that
their client report the exchange even where no tax is generated,
especially in an effort to start the clock running on the statute of
limitations. If the advisor chooses to report the exchange, it should be
done as simply as possible. A short "memo box" recapitulation on a
single sheet of paper would be ideal. This recapitulation could
then be attached to Schedule D or Form 4797.
If a taxpayer has a like-kind exchange, Form 8824, Like-Kind
Exchanges, must be filed in addition to Schedule D or Form 4797.
The Form 8824 requests specific information about the exchange
(a) Descriptions of the properties,
(b) Date of disposition of taxpayer's property,
(c) Dates of identification and acquisition of the replacement
(d) Certain related party information. The balance of the form concerns
computations of realized gain or loss, recognized gain, basis of
property received, and deferred gain.
For more information on this matter or if we
may be of further assistance please contact us for a free consultation
by calling us at 1 (800) 781-1031
or (714) 939-1031 or
by e-mail at
Security investments offered
through Sandlapper Securities, LLC. (Member FINRA, SIPC)