Stanford University Ace Corp

Discussion Topic 1: Trading Property

Ace Corporation has located a building that it would like to acquire for its office complex. Ace Corporation has contacted the owner of the property about making a trade for Ace’s existing property. The owner of the property is only willing to sell for cash, as he will have little gain on the sale and has no use for the Ace property. Ace Corporation, on the other hand, has an extremely low basis in its property and is unwilling to sell it in order to purchase the new property.

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  • Discuss if there is any way Ace and the owner of the other property can accomplish their goals.
  • Do you think Congress had this intent in mind when they created these tax provisions?
  • Do you think this “smells” of tax avoidance/deferral?
  • Provide specific details to support your opinions in your response.

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Do the discussion and then do the response each posted # 1 -3

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Posted 1

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In this scenario there is an option for everyone. Since the owner of the office complex is only willing to sell for cash, it is possible that Ace Corporation could get the property at a discounted rate. Most of the time, sellers who receive cash are willing to accept a decreased amount due to the fact that the money is instantly accessible and not being paid in installments. Ace Corporation should reconsider selling their property to purchase the new complex. They could probably get a descent amount of cash to assist in the purchase of the office complex.

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Another option would be to conduct a 1031 exchange for like-kinded assets. The 1031 allows both parties to exchange property with capital gains taxes being deferred. Although, the owner of the property has no use for the Ace property, he could still sale it to gain the cash he desires. I do believe that Congress had good intentions when these provisions were created. However, I do not think all avenues were taken into consideration. I say that because, well what should we do when one owner doesn’t want the property available for exchange? This situation is conflicting and to satisfy everyone, Ace would either need to sell their property to a third party or the office complex owner would need to accept Ace’s property.

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In my opinion, this doesn’t seem like a case where someone is trying to avoid taxes. It just sounds like a situation where everyone is looking for the quickest way to benefit their needs and not take on any excess responsibilities.

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Posted 2

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Presumably, ACE’s goal is to dispose of their current property and acquire the new one while paying as little tax as possible in the process. The other owner’s goal is to sell the property for cash and not have to replace it.

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Ace could accomplish its goal by disposing of the first property in a different manner It could attempt to sell it to someone on an installment basis. This would allow it to recognize the gain over time instead of all at once (Ayers, et al., 2020). It could also donate the property and use the charitable contribution deduction to reduce its tax liability. Given the amount that the property is worth, they would most likely have to recognize it over the course of several years, at most five years, due to the 10% limitation (Ayers, et al., 2020). This, however, may only seem like a good plan from a tax basis and be less appealing from a financial standpoint. If they chose either of these options, they could still purchase the property they want with cash and use depreciation deductions to reduce their tax liability.

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I think Congress’s intent with provisions such as like-kind exchanges, charitable contribution deductions, and installment sales was not to indefinitely defer or eliminate an entity or individual’s taxes. I think the intent was more in line with wherewithal-to-pay. I also think there is an element of avoidance/deferral for ACE. The basis in their property is low, so they would probably recognize a capital gain if they sold the property outright. By making a like-kind exchange (as they originally wanted to) they would defer that tax liability they would otherwise have to immediately pay (Ayers, et al., 2020).

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Posted 3

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The companies do accomplish what they set out to do one of the form the property owners only want to There are certain things companies want or need done before the companies can even think about selling the property. There are things that each company has to look at The exchange can include like-kind property exclusively or it can include like-kind property along with cash, liabilities and property that are not like-kind. If you receive cash, relief from debt, or property that is not like-kind, however, you may trigger some taxable gain in the year of the exchange. There can be both deferred and recognized gain in the same transaction when a taxpayer exchanges for like-kind property of lesser value. Owners of investment and business property may qualify for a Section 1031 deferral. Individuals, C corporations, S corporations, partnerships (general or limited), limited liability companies, trusts and any other taxpaying entity may set up an exchange of business or investment properties for business or investment properties under Section 1031

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Taxpayers engaging in deferred exchanges generally use exchange facilitators under exchange agreements pursuant to rules provided in the Income Tax Regulations. . A reverse exchange is somewhat more complex than a deferred exchange. It involves the acquisition of replacement property through an exchange accommodation titleholder, with whom it is parked for no more than 180 days.

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Congress made the laws to get more money out of companies and it does work because companies have to pay their share of taxes every year if not every month

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The tax gap – the difference between the tax that should be paid and what the Exchequer collects – is at a near-record low, and the joint lowest level it has been in five years thanks to HM Revenue and Customs’ (HMRC) sustained efforts to tackle non-compliance, and to help customers get things right from the start.1 HMRC tailors its approach to different taxpayers, subjecting the largest businesses and the wealthiest individuals to the greatest level of scrutiny; whilst using data and digital tools to help smaller and mid-sized businesses to get it right, and with close attention on those where avoidance or evasion is suspected

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When it comes to companies the owners don’t want to stop paying taxes they want to keep everything above bored so that the companies do not get into any trouble with the government .Although that is why the government comes up with new laws for companies to pay that why the government keep coming up with new laws.

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