rp-00-46.pdf

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Part III
Administrative, Procedural, and Miscellaneous
26 CFR 601.201: Rulings and determination letters
Rev. Proc. 2000-46
SECTION 1. PURPOSE
This revenue procedure amplifies Rev. Proc. 2000-3, 2000-1 I.R.B. 103, which sets forth
areas of the Internal Revenue Code under the jurisdiction of the Associate Chief Counsel in
which the Internal Revenue Service will not issue advance rulings or determination letters.
SECTION 2. BACKGROUND
Section 5 of Rev. Proc. 2000-3 sets forth those areas under extensive study in which
rulings or determination letters will not be issued until the Service resolves the issue through
publication of a revenue ruling, revenue procedure, regulations, or otherwise.
Section 301.7701-1(a)(1) provides that whether an organization is an entity separate from
its owners for federal tax purposes is a matter of federal tax law and does not depend on whether
the entity is recognized as an entity under local law.
Section 301.7701-1(a)(2) provides that a joint undertaking or other contractual
arrangement may create a separate entity for federal tax purposes if the participants carry on a
trade, business, financial operation, or venture and divide the profits therefrom. If such an entity
is a business entity (i.e., is not a trust) with two or more members, the entity is classified for
federal tax purposes either as a partnership or a corporation.
Section 1031(a)(1) provides that no gain or loss shall be recognized on the exchange of
property held for productive use in a trade or business or for investment if such property is
exchanged solely for property of like kind which is to be held either for productive use in a trade
or business or for investment. Sections 1031(a)(2)(B) and 1031(a)(2)(D) provide exceptions
from the application of section 1031(a)(1) for stock and interests in a partnership, respectively.
The Service recently has become aware, in part through several requests for advance
rulings, that taxpayers are taking the position that certain arrangements where taxpayers acquire
undivided fractional interests in real property do not constitute separate entities for federal tax
purposes and therefore the fractional interests may be the subject of tax-free exchanges under
section 1031(a)(1). The Service intends to study further the facts and circumstances relevant to
the determination of whether such arrangements are separate entities for federal tax purposes.

SECTION 3. PROCEDURE
Rev. Proc. 2000-3 is amplified by adding the following to section 5.10.
Section 1031. - Exceptions. - Whether an undivided fractional interest in real property is
an interest in an entity that is not eligible for tax-free exchange under section 1031(a)(1).
Section 7701. - Definitions. - Whether arrangements where taxpayers acquire undivided
fractional interests in real property constitute separate entities for federal tax purposes.
SECTION 4. EFFECTIVE DATE
This revenue procedure applies to all ruling requests, including any pending in the
National Office and any submitted after the date of this publication.
SECTION 5. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 2000-3 is amplified.
SECTION 6. REQUEST FOR COMMENTS
The Service requests comments concerning this revenue procedure. In particular,
comments are requested with respect to the relevance and impact of the following factors to the
determination of whether arrangements where taxpayers acquire undivided fractional interests in
real property constitute separate entities for federal tax purposes: (1) the terms of any leasing or
management agreements entered into with respect to the property and the relationships between
the parties to such agreements and the promoter or organizer of the arrangement; (2) the terms of
any agreements between the promoter or organizer of the arrangement and the holders of the
fractional interests or among the holders of the fractional interests, including any contractual
restrictions to which the fractional interests are subject, such as waivers of the right to partition,
rights of first refusal, and options to put and/or call the fractional interests; and (3) the overall
economics of the arrangements, including the sharing of profits and losses from operating the
property as well as of appreciation and depreciation in the value of the property. An original and
eight copies of written comments should be sent to:
Internal Revenue Service
Attn: CC:MSP:R (Rev. Proc. 2000-46)
Room 5228 (PSI:Br1)
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044
or hand delivered between the hours of 8 a.m. and 5 p.m. to:

Courier’s Desk
Internal Revenue Service
Attn: CC:MSP:R (Rev. Proc. 2000-46)
Room 5228 (PSI:Br1)
1111 Constitution Avenue, NW
Washington, DC
Alternatively, taxpayers may submit comments electronically at:
Joel.S.Rutstein@M1.IRSCounsel.treas.gov.
DRAFTING INFORMATION
The principal author of this revenue procedure is Jeanne Sullivan of the Office of the
Associate Chief Counsel, Passthroughs & Special Industries. However, other personnel from the
IRS and Treasury participated in its development. For further information, contact Jeanne
Sullivan at (202) 622-3050 (not a toll-free number).