Section 1031.—Exchange of Property Held for Productive Use or Investment

26 CFR 1.1031(a)–2: Additional rules for exchanges of personal property.

T.D. 9202

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1

Additional Rules for Exchanges of Personal Property under Section 1031(a)

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

SUMMARY: This document contains final regulations that replace the use of the Standard Industrial Classification (SIC) system with the North American Industry Classification System (NAICS) for determining what properties are of a like class for purposes of section 1031 of the Internal Revenue Code (Code). The regulations affect taxpayers that engage in like-kind exchanges of depreciable tangible personal property.

DATES: Effective Date: These regulations are effective May 19, 2005.

Applicability Dates: For dates of applicability, see §1.1031(a)–2(d).

FOR FURTHER INFORMATION CONTACT: J. Peter Baumgarten, (202) 622–4920 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to 26 CFR Part 1. On August 13, 2004, the IRS and Treasury Department published in the Federal Register a notice of

proposed rulemaking (REG–116265–04, 2004–38 I.R.B. 501 [69 FR 50108]) by cross reference to temporary regulations (T.D. 9151, 2004–38 I.R.B. 489 [69 FR 50067]) under section 1031(a). These amendments relate to the transition from the use of the four-digit codes under the SIC system to the six-digit NAICS for determining product classes of depreciable tangible personal property exchanged under section 1031. No written or electronic comments in response to the proposed regulations or requests to speak at a public hearing were received, and no hearing was held. The proposed regulations under section 1031 are adopted by this Treasury decision, and the temporary regulations are removed.

Effective Date

These final regulations apply to transfers of property made by taxpayers on or after August 12, 2004. However, taxpayers may apply the regulations to transfers of property made by taxpayers on or after January 1, 1997, in taxable years for which the period of limitation for filing a claim for refund or credit under section 6511 has not expired. Additionally, taxpayers may treat properties within the same product classes under a 4-digit SIC code as properties of like class for transfers of property made by taxpayers on or before May 19, 2005.

Special Analysis

It has been determined that these final regulations are not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and, because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking that preceded these regulations was submitted to the Chief Counsel for Advocacy of the Small Business

Administration for comment on its impact on small business.

Drafting Information

The principal author of these final regulations is J. Peter Baumgarten of the Office of the Associate Chief Counsel (Income Tax and Accounting). However, other personnel from the IRS and Treasury Department participated in their development.

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Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 1 is amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read, in part, as follows:

Authority: 26 U.S.C. 7805. - * * Par. 2. Section 1.1031(a)–2 is amended by:

1. Revising paragraphs (b)(3) through (b)(6), Example 3 and Example 4 of paragraph (b)(7), and paragraph (d).

2. Adding paragraph (b)(8). The revisions and addition read as follows.

§1.1031(a)–2 Additional rules for exchanges of personal property.

• • • • (b)* - (3) Product classes . Except as provided in paragraphs (b)(4) and (5) of this section, or as provided by the Commissioner in published guidance of general applicability, property within a product class consists of depreciable tangible personal property that is described in a 6-digit product class within Sectors 31, 32, and 33 (pertaining to manufacturing industries) of the North American Industry Classification System (NAICS), set forth in Executive Office of the President, Office of Management and Budget, North Ameri- can Industry Classification System, United States, 2002 (NAICS Manual), as periodically updated. Copies of the NAICS Manual may be obtained from the National

2005–24 I.R.B. 1213 June 13, 2005

tion to transfers of property made by taxpayers on or after January 1, 1997, in taxable years for which the period of limitation for filing a claim for refund or credit under section 6511 has not expired.

§1.1031(a)–2T [Removed]

Par. 3. Section 1.1031(a)–2T is removed.

§1.1031(j)–1 [Amended]

Par. 4. Section 1.1031(j)–1(d) is amended by removing the language “(SIC Code 3531)” in Example 3 (ii)(C) and Example 5 (i) and adding “(NAICS code 333120)” in its place.

Cono R. Namorato, Acting Deputy Commissioner for

Services and Enforcement .

Approved May 12, 2005.

Eric Solomon, Acting Deputy Assistant Secretary

of the Treasury .

(Filed by the Office of the Federal Register on May 18, 2005, 8:45 a.m., and published in the issue of the Federal Register for May 19, 2005, 70 F.R. 28818)