Opinion ID: 2783177
Heading Depth: 2
Heading Rank: 2

Heading: Representative Transactions

Text: The parties stipulated to two exchange transactions that they agree are representative of the 398 LKE transactions at issue in this case. Because the two stipulated transactions are essentially identical, the district court focused on only one of them: the exchange of Truck 1 (North Central's relinquished property) for Truck 2, Skid Steer 1, and Skid Steer 2 (North Central's replacement property). So will we. In the representative transaction, North Central agreed on or before June 30, 2004, to sell Truck 1 to a third party for $756,500. North Central's adjusted tax basis in Truck 1 was $129,372.70 at the time. The third party paid Accruit the $756,500 in sales proceeds, and North Central transferred to the third party legal ownership of Truck 1. On or about August 13, 2004, Butler Machinery identified and purchased the replacement Caterpillar equipment, Truck 2 and Skid Steers 1 and 2. Butler Machinery's total acquisition price for this new property was $761,065.60. Butler Machinery then transferred legal ownership of the replacement property to North Central through Accruit on August 27, 2004. On September 10, 2004, Accruit transferred the $756,500 in proceeds from the sale of Truck 1 to Butler Machinery. North Central and Butler Machinery then adjusted a note between the two companies to compensate Butler Machinery for the $4,565.60 difference between the $756,500 in sale proceeds and the $761,065.60 that Butler Machinery paid for the replacement equipment. Thus, in the immediate aftermath of the transaction, (1) a third party owned Truck 1; (2) North Central held its replacement property (Truck 2 and Skid Steers 1 and 2) and an adjusted note reflecting its new $4,565.60 debt to Butler Machinery; and (3) Butler Machinery possessed the $756,500 in sale proceeds from Truck 1 and an adjusted note reflecting its new $4,565.60 credit to North Central. North Central -4- deferred recognizing the $627,127.30 gain it realized from the transaction (the difference between the $756,500 in sales proceeds from Truck 1 and North Central's $129,372.70 adjusted tax basis in Truck 1), claiming the gain was entitled to nonrecognition treatment under 26 U.S.C. § 1031. And Butler Machinery, per Caterpillar's DRIS financing terms, had essentially unfettered use of the sales proceeds from Truck 1 for nearly six months before it was obligated to pay Caterpillar for the replacement equipment.