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 the issue.

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.

 
Form 8824

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 including:

 (a) Descriptions of the properties,
 (b) Date of disposition of taxpayer's property,
 (c) Dates of identification and acquisition of the replacement property, and
 (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 info@cornerstoneexchange.com .


Security investments offered through Sandlapper Securities, LLC. (Member FINRA, SIPC)