Enhancing the turbo–charging effect of Title–Holding [land] trust, Uncle Sam directly – and indirectly – offers POTENTIRS Revenue Ruling 92–105 which has held that: benefits to investors/end–users of Title–Holding [land] Trusts. In the Exchange context, a primary one of those benefits is derived from
“A taxpayer’s beneficiary interest in an Illinois [Title–Holding] land trust constitutes real property which may be exchanged for other real property without recognition of gain or loss under IRC §1031 (i.e. treated as Like–Kind)… provided the requirements of that section are otherwise satisfied. This holding is not applicable if an arrangement involving an Illinois land trust creates an entity (such as a partnership).” The ruling goes on to state:
“The holding in this revenue ruling also applies to an interest in a similar arrangement created under the laws of any state, pursuant to which:
- the trustee has title to real property,
- the beneficiary (or a designee of the beneficiary) has the exclusive right to direct or control the trustee in dealing with the title to the property, and,
- the beneficiary has the exclusive control of the management of the property, the exclusive right to the earnings and proceeds from the property, and the obligation to pay any taxes and liabilities relating to the property.”
At least eight states – in addition to Illinois – have laws that statutorily (including Alabama, District of Columbia, Florida, Georgia, Hawaii, Indiana, Louisiana, North Dakota, Ohio, and Virginia), or judicially (Arizona, Arkansas, California, Colorado, Delaware, Massachusetts, Michigan, Mississippi, New Mexico, North Carolina, Pennsylvania, South Dakota, and Wisconsin) sanction arrangements that are similar to the Illinois–type [Title–Holding] land trust arrangement described in Revenue Ruling 92–105.
Other states have trust statutes that impliedly provide for the validity of the Illinois–type [Title–Holding] land trusts (Idaho, Iowa, Kansas, Maine, Maryland, Minnesota, Missouri, Montana, Nebraska, Nevada, New Jersey, Oklahoma, Rhode Island, South Carolina, Vermont, Washington, West Virginia). Still other states have statutes providing for modified versions of the [Title–Holding] land trust which may still qualify for “Like–kind” treatment under Revenue Ruling 92–105.
Consequently, the Illinois [Title–Holding] land trust holds a significant advantage not given to other forms of ownership interests, including other types of trusts (or even other types of inter vivos trusts). This advantage becomes more apparent when seen in operation, particularly when juxtaposed against the several tax issues presented by installment sales, as shown in several deal scenario applications in 1031 Trust Exchange Solutions™.