LIKE KIND EXCHANGES BETWEEN RELATED PERSONS.

SEC. 7601. LIKE KIND EXCHANGES BETWEEN RELATED PERSONS. (a) Special Rules for Exchanges Between Related Persons, Etc.—Section 1031 (relating to exchange of property held for productive use or investment) is amended by adding at the end thereof the following new subsections: “(f) Special Rules for Exchanges Between Related Persons.— “(1) In general.—If— “(A) a taxpayer exchanges property with a related person, “(B) there is nonrecognition of gain or loss to the taxpayer under this section with respect to the exchange of such property (determined without regard to this subsection), and “(C) before the date 2 years after the date of the last transfer which was part of such exchange— “(i) the related person disposes of such property, or “(ii) the taxpayer disposes of the property received in the exchange from the related person which was of like kind to the property transferred by the taxpayer, there shall be no non recognition of gain or loss under this section to the taxpayer with respect to such exchange; except that any gain or loss recognized by the taxpayer by reason of this subsection shall be taken into account as of the date on which the disposition referred to in subparagraph (C) occurs. “(2) Certain dispositions not taken into account.—For purposes of paragraph (1)(C), there shall not be taken into account any disposition— “(A) after the earlier of the death of the taxpayer or the death of the related person, “(B) in a compulsory or involuntary conversion (within the meaning of section 1033) if the exchange occurred before the threat or imminence of such conversion, or “(C) with respect to which it is established to the satisfaction of the Secretary that neither the exchange nor such disposition had as one of its principal purposes the avoidance of Federal income tax. “(3) Related person.—For purposes of this subsection, the term ‘related person’ means any person bearing a relationship to the taxpayer described in section 267(b). 103 STAT. 2371 “(4) Treatment of certain transactions.—This section shall not apply to any exchange which is part of a transaction (or series of transactions) structured to avoid the purposes of this subsection. “(g) Special Rule Where Substantial Diminution of Risk.— “(1) In general.—If paragraph (2) applies to any property for any period, the running of the period set forth in subsection (f)(1)(C) with respect to such property shall be suspended during such period. “(2) Property to which subsection applies.— This paragraph shall apply to any property for any period during which the holder’s risk of loss with respect to the property is substantially diminished by— “(A) the holding of a put with respect to such property, “(B) the holding by another person of a right to acquire such property, or “(C) a short sale or any other transaction. “(h) Special Rule for Foreign Real Property.—For purposes of this section, real property located in the United States and real property located outside the United States are not property of a like kind.” (b) Effective Date.— (1) In general.—Except as provided in paragraph (2), the amendments made by this section shall apply to transfers after July 10, 1989, in taxable years ending after such date. (2) Binding contract.—The amendments made by this section shall not apply to any transfer pursuant to a written binding contract in effect on July 10, 1989, and at all times thereafter before the transfer.