An Aggregate Approach to Indirect Exchanges of Partnership Interests: Reconciling Section 1031 and Subchapter K

This article examines indirect exchanges of partnership interests in light of the distinctive continuity-of-investment principles of section 1031 and Subchapter K of the Internal Revenue Code. Part II of the article focuses on the failure of judicial responses and alternative approaches prior to the 1984 Act to prevent the potential abuses of direct exchanges of partnership interests. Part III examines section 1031(a)(2)(D) against the background of two recent decisions by the United States Court of Appeals for the Ninth Circuit concerning successive tax-free exchanges. Part IV focuses on planning techniques involving like-kind exchanges coupled with partnership contributions and distributions. Part V proposes that a strict aggregate approach to successive tax-free exchanges is necessary to reconcile the nonrecognition provisions of section 1031 and Subchapter K. Finally, the article concludes that combined use of these nonrecognition provisions could be permitted without rekindling the old abuses of direct exchanges of partnership interests