## Facts

- Barry E. Moore and Deborah E. Moore owned a Georgia vacation home (vacation home 1) acquired in 1988 and used by the family on warm-weather weekends for recreation.
- The Moores never rented or offered to rent vacation home 1; off-season visits were limited to maintenance consistent with vacation use.
- After moving their principal residence in 1995 or 1996, they used vacation home 1 less due to a longer commute.
- In 2000, they disposed of vacation home 1 and acquired a closer lakefront property (vacation home 2) through transactions intended to qualify as a § 1031 like-kind exchange.
- Vacation home 2 was also used exclusively for family recreation and was never rented or offered for rent; it was later held for sale due to liquidity needs during a pending divorce.
- Deborah Moore initially held a 2% membership interest in The Surgery Center of Georgia, LLC upon its formation in April 1995.
- In July 2000, a written agreement executed in connection with the sale of the LLC stated that transfers increasing Ms. Moore’s interest by 10 percentage points were “effective as of” January 1, 1997.
- The LLC made distributions in 1998–2000 consistent with a 68%-20%-12% split among the members, reflecting Ms. Moore at 12%.
- On July 28, 2000, all LLC membership interests were sold to a third party; Ms. Moore received cash and a promissory note.
- On the Moores’ 2000 return, they reported gain from the LLC sale as long-term capital gain using an installment approach, including the cash received and the first five monthly note payments.

## Issues

1. Whether the vacation-home disposition and acquisition qualified as a nonrecognition like-kind exchange under I.R.C. § 1031, specifically whether the properties were “held for investment.”
2. Whether Ms. Moore’s LLC interest increased to 12% effective January 1, 1997, or only in July 2000.
3. Whether the Moores could report Ms. Moore’s gain from the 2000 LLC sale under the installment method under I.R.C. § 453, or instead had to recognize the full gain in 2000.

## Decision

- The court held that neither vacation home was held for investment; the § 1031 exchange treatment was denied.
- The court held that Ms. Moore’s LLC interest increase to 12% was effective January 1, 1997.
- The court held that the Moores were not entitled to report the LLC sale gain under the installment method as reported and were required to recognize the entire gain in 2000.
- The deficiencies were sustained subject to computational adjustments for resolved items.

## Legal Principles

- Section 1031 nonrecognition requires that both relinquished and replacement property be held for productive use in a trade or business or for investment.
- Whether property is “held for investment” for § 1031 purposes depends on the taxpayer’s primary purpose at the time of the exchange; personal-use conduct may show a non-investment purpose.
- An expectation of appreciation does not by itself establish investment holding when the property is used exclusively as a personal vacation home and is not rented or offered for rent.
- Ownership and allocation consequences may follow a transfer’s stated effective date where consistent economic performance (e.g., distributions) supports that effective date.
- Under § 453, taxpayers may use the installment method only if properly applied; reporting treatment on the return can determine whether the taxpayer has effectively opted out or otherwise failed to qualify for installment reporting.

## Conclusion

The Tax Court denied like-kind exchange treatment because the vacation homes were held and used solely for personal recreation rather than primarily for investment, treated Ms. Moore’s increased LLC interest as effective January 1, 1997 based on the agreement and consistent distributions, and required full recognition in 2000 of gain from the LLC sale rather than installment reporting.


Moore v. Commissioner, T.C. Memo. 2007-134 (2007)