H.R. 1 has changed like-kind exchange treatment to allow 1031 to apply only to exchanges of real estate. Read the following article that explains the history of 1031 and lists some pros and cons of 1031 treatment.

Do you think the changes to 1031 which were included in H.R. 1 address the concerns? Should 1031 have been repealed entirely? Should it not have changed at all?POINT & COUNTERPOINT To Repeal or Retain Section 1031: A Tempest in a $6 Billion Teapot By Bradley T. Borden, Joseph B. Darby III, Charlene D. Luke & Roberta F. Mann* This article is a condensation and summary of the LincolnDouglas Debate on Whether to Repeal Code 1031 held at the Teaching Tax Committee meeting at the 2015 ABA Section of Taxation Midyear Meeting in Houston, Texas. The debate itself was lively and fun, and raised numerous interesting and provocative points on both sides of the issue. The authors thank Stephen Breitstone for filling in at the last minute to participate in the debate. The arguments for and against repeal are presented in article format here, but the authors are not in full agreement with respect to each argument. To retain, repeal, or reform? These are the questions section 1031 invites. This brief article attempts to lay out the competing arguments in favor of each of the first two questions and then explores the two most prominent reform alternatives. If each of the four authors were to have individually stated their views as to each question, readers would be faced with twelve essays. Instead, they have combined and condensed their argument into four parts: (1) a short history of section 1031; (2) the arguments in favor of repeal; (3) the arguments against repeal; and (4) potential avenues for reform. Short History of Section 1031 The first modern income tax law was adopted by Congress in 1913, and the first antecedent to section 1031 was enacted eight years later, in 1921. The original provision was broader in scope than present-day section 1031, providing that no gain or loss would be recognized on an exchange of property if: (1) the property received did not have a readily realizable market value or (2) the property transferred was held for investment or for productive use in a trade or business and exchanged for property of a like kind or use. The provision allowing non-like-kind exchanges of property was soon eliminated in 1924, and since then the like-kind exchange rules have remained substantially intact, with the legislative tweaks described below, for almost 100 years. The law itself was substantially unchanged from 1924 to 1984, but during that period a significant body of section 1031 case law developed. Perhaps most importantly, the courts fleshed out the parameters of the section 1031 exchange requirement. They held that multiple-party transactions could satisfy the statutory requirement only if the exchanger was not in actual or constructive receipt of the exchange proceeds. Consequently, most multiple-party exchanges required a facilitator. In response to the Ninth Circuits 1979 holding in Starker v. United States that a transaction qualified as an exchange even though there was a two-year gap between the transfer of the relinquished property and the receipt of the replacement property, * Bradley T. Borden, Professor of Law, Brooklyn Law School, Brooklyn, NY; Joseph B. (Jay) Darby III, Partner, Sullivan & Worcester LLP, Boston, MA, and Adjunct Professor of Law, Boston University School of Law; Charlene D. Luke, Professor of Law, University of Florida Levin College of Law, Gainesville, FL; and Roberta F. Mann, Loran L. Stewart Professor of Business Law, University of Oregon School of Law, Eugene, OR. Note that Jay Darby dissents from the section covering the arguments favoring repeal, concurs in the section covering the arguments against repeal, and concurs in part and dissents in part with respect to the section covering potential avenues for reform. 18 I ABA SECTION OF TAXATION NEWSQUARTERLY Congress enacted section 1031(a)(3) in 1984. That provision allows for deferred exchanges that satisfy the identification and exchange timing requirements. The 1984 legislation also prohibited the application of section 1031 to exchanges of partnership interests. In 1989, Congress added section 1031(f), limiting the benefits of like-kind exchanges between related parties, and section 1031(h), treating U.S. property as being not of like-kind to foreign property. Administrative regulations and rulings have also actively contributed to the law under section 1031. In 1991, the Service issued extensive regulations that created exchange safe harbors, including the qualified intermediary safe harbor, to help exchangers more easily accomplish transactions that the Service deemed to come within the section 1031 definition of exchange. The Service also provided substantial guidance on how to structure reverse exchanges, improvement exchanges, leasehold improvement exchanges, and program exchanges with certainty that the Service will not challenge the application of section 1031 to such transactions. The Service also provided specific guidance about the nature of tenancy-in-common interests and interests in certain statutory trusts that hold real estate. With that guidance, exchangers can be comfortable that a long-held fee interest in real property can be like kind to an interest in a properly structured Delaware statutory trust held by numerous other owners throughout the country. Needless to say, the current application of section 1031 is significantly different from its application in 1921 when its predecessor became part of the law. Every exchanger must report like-kind exchanges on Form 8824. Published data from recent tax years reveals that individuals file more than 60% of all filed Forms 8824. Corporations account for about 30% of filed returns, but they account for almost 60% of all reported deferred gain. The table below summarizes these numbers. Arguments in Favor of Repealing Section 1031 An effective tax provision should be equitably distributed, minimize economic distortions, and be easy to administer. Section 1031 arguably fails to meet any of these classic tax policy criteria. It can be asserted that it disproportionately benefits wealthy taxpayers, causes overinvestment in qualifying property, and has created massive administrative complexity. While section 1031 may have served a valid purpose when first enacted, it arguably has evolved into an entrenched, expensive, undeserved, and unnecessary benefit. Recent Calls for Repeal In 2010, the so-called Volker Report presented the repeal of section 1031 as an option for reforming the tax treatment of capital gains. Republican Chairman of the House Ways and Means Committee David Camp proposed repealing section 1031 in his comprehensive tax reform discussion draft. Democratic Chairman of the Senate Finance Committee Max Baucus proposed repealing section 1031 in his discussion draft on tax reform of cost recovery and accounting. President Obamas 2015 Budget proposed limiting section 1031 gain deferral to $1 million per taxpayer per taxable year, which was estimated to reduce the budget deficit by an estimated $18.27 billion over the years. News reports, such as an article in The New York Times last January about POINT & COUNTERPOINT I TO REPEAL OR RETAIN SECTION 1031 continued from page 1 Form 8824 Data for Tax Year 2011 (All money amounts are in thousands of dollars) Individuals Corporations Partnerships Number of Forms 8824 170,268 82,314 22,064 Item Line No. Amount Amount Amount FMV of other property given up 12 $289,416 $430,345 $726,115 Adjusted basis of other property given up 13 $68,974 $205,219 $34,677 Gain (or loss) recognized on other property given up 14 $220,442 $225,127 $691,439 Cash received, FMV of other property received, plus net liabilities 15 $1,787,432 $1,914,721 $1,408,502 FMV of like-kind property received 16 $15,311,387 $35,229,605 $15,107,374 Adjusted basis of like-kind property given up 18 $12,377,383 $15,110,927 $9,198,798 Realized gain (or loss) 19 $4,721,435 $23,711,560 $10,132,650 Ordinary income under recapture rules 21 $52,829 $2,651,711 $279,086 Recognized gain 23 $849,498 $3,142,592 $918,758 Deferred gain (or loss) 24 $3,871,938 $20,601,736 $9,213,893 Basis of like-kind property received 25 $11,439,449 $17,114,754 $12,269,709 Source: Internal Revenue Service, Statistics of Income Division. SPRING 2015 I 19 major American companies pushing the boundaries of section 1031, have fueled the appetite for repeal. To be sure, budget estimates may show partisan bias, but the scope of the number utilized by the Obama administration at least provides a sense of the maximum expenditure represented by current law. Inequitable Distribution of Section 1031 Benefits Section 1031 is the third largest corporate tax expenditure, estimated to reduce revenues by $11.7 billion in 2014. Supporters of section 1031 may argue that if it is repealed, taxpayers will simply use other strategies like investment in real estate investment trusts, holding property in partnerships, or cross-renting arrangements. However, these arguments do not support retaining section 1031, although they may support reform of other provisions. There is little data on the distributional impact of section 1031. However, various studies show that the preferential tax rate for capital gains disproportionately benefits the wealthiest of taxpayers. For instance, the Congressional Budget Office estimates that taxpayers in the top 1% receive 68% of the benefit of low tax rates on capital gains and dividends, while the bottom 80% will receive only 7%. As section 1031 allows tax deferral upon the transfer of investment property that would otherwise frequently produce capital gains for individuals, it is likely that section 1031 benefits the same sort of taxpayer. Section 1031 is unlikely to benefit small investors because the gain deferral would not be enough to offset the costs of the exchange, which generally include hiring an accommodator to facilitate the exchange. Additionally, the transaction cost of hiring an accommodator would be a larger percentage of the tax benefit gain on the exchange of lower-value property. Finally, the data from Form 8824 shows that corporations derive the greatest tax benefit from section 1031, suggesting that the benefit goes to the largest taxpayers. Overinvestment in Like-Kind Property Causes Economic Distortion Section 1031 encourages reinvestment of exchange proceeds in property that is like kind to relinquished property. Thus, section 1031 encourages what might be called asset-type lock-in effect. For instance, exchangers lock in to holding real estate, if their initial investment was in real estate. Without section 1031, those same investors might diversify their holdings. By encouraging reinvestment in like-kind property, section 1031 may artificially inflate the value of property that qualifies for section 1031 treatment. Any inflated values affect investor decisions and further distort economic behavior. Calls for retention of section 1031 come loudest from the real estate and qualified intermediary industries. They predict disaster and economic collapse if the prop of section 1031 is removed. These predictions are undoubtedly biased. The Federation of Exchange Accommodators (FEA), an industry group representing section 1031 exchange accommodators, argued that the Joint Committee on Taxation (JCT) estimates of revenue lost to like-kind exchanges in 2010 were overstated, based on a survey of their customers. JCTs 2010 estimate of the revenue loss from section 1031 was $2.1 billion. The actual deferred gain based on Forms 8824 filed in 2010 was $40 billion, which, if one were to calculate tax savings using a conservative 15% capital gains rate, would translate to $6 billion of revenue loss. As there was likely some recapture and higher rate capital gain in the mix, the JCTs estimate rather than overstating, significantly understated the revenue loss. One argument is that even though the government loses revenue when a property owner transfers property and exchanges up into more expensive property, the government effectively becomes a partner in the reinvested capital