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Bloomberg Tax - Tax Management Real Estate Journal, Vol. 36, No. 7

Gluck v. Commissioner – A Cautionary Lesson for Real Estate Investors Claiming Entitlement to Like-Kind Exchange Treatment

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主页 观点 Gluck v. Commissioner – A Cautionary Lesson for Real Estate Investors Claiming Entitlement to Like-Kind Exchange Treatment
The U.S. Tax Court recently issued Memorandum Decision in Docket No. 3435-19, Laurence Gluck and Sandra Prusock v. Commissioner1 (Gluck). Central among the issues before the Tax Court in this Memorandum decision was the petitioners’ entitlement to like-kind exchange treatment under Section 10312 to defer capital gains realized upon a 2012 sale of a condominium unit that they owned in New York City. Beyond this issue, however, Gluck addresses several interesting questions appurtenant to real estate investors: the Tax Court’s jurisdiction over delinquency cases that involve positions contradictory to a Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) partnership’s filed return; the distinction between computational and factual partnership items; the duties of a partner to contest partnership items under Section 6662(a) as reported by a TEFRA partnership; whether the Tax Court has jurisdiction over penalties assessed against an individual taxpayer as a result of a computational item adjustment; and what due diligence is required by real estate investors when taking tax return positions.

This article analyzes Gluck and examines the important lessons inherent in the case for partners in real estate investment partnerships. It also considers how taxpayers might avoid a factual scenario similar to that in Gluck, where the Court ultimately denied petitioners’ request for redetermination of the IRS disallowance of their claimed §1031 like-kind exchange treatment on the sale of a real estate asset.

Background

Laurence Gluck is a true denizen of New York City. Born and raised in the Bronx, and a graduate of Queens College and St. John’s University School of Law, Mr. Gluck left his practice as a litigation associate at Proskauer, Rose, Goetz, & Mendelssohn in the early 1980s to become a real estate attorney at another, smaller New York City law firm.3 It was during his tenure as a real estate specialist that Mr. Gluck purchased his first investment property and, in 1985, formed a property management company with one of his law partners called Stellar Management.4 When the real estate market in the United States collapsed in 1998, Mr. Gluck dissolved Stellar Management and caused this partnership to distribute the residential properties previously held by it, which he continued to own and manage under the Stellar Management name.5 Since the early 2000s, Mr. Gluck purchased dozens of mostly aging residential buildings in New York City under soon-to-expire housing subsidies.6 He typically renovated these properties and, as the subsidies expired, replaced the rent-regulated tenants with market rate tenants.

In the past two decades, his company, Stellar Management, acquired over 24,000 apartment units in New York, Chicago, Washington, D.C., and San Francisco.7

  1. T.C. Memo 2020-66.
  2. All section references herein are to the Internal Revenue Code of 1986, as amended (the ‘‘Code’’), or the Treasury regulations promulgated thereunder, unless otherwise indicated.
  3. Laurence Gluck Wikipedia (2019), available at https://en.wikipedia.org/.
  4. Laurence Gluck Wikipedia (2019).
  5. Laurence Gluck Wikipedia (2019).
  6. Laurence Gluck Wikipedia (2019).
  7. Laurence Gluck Wikipedia (2019).
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