Section 1031 specifically excludes partnership interests as eligible property for like-kind exchanges. Drop and swaps allow partners to receive individual ownership interests separately so that each partner can do a 1031 exchange or exit a partnership or LLC as they prefer.

The investment is dropped into a tenancy in common (TIC) and subsequently swapped. The conversion must comply with complex regulations for the transaction to be respected. The timing of the drop and the swap is critical.

A mixing bowl structure enables partners to trade assets by contributing the assets to a newly created partnership and to defer the tax on the exchange. However, the partners must execute the transaction correctly to avoid the disguised sale and anti-mixing bowl sanctions.

Partnerships and LLCs need to understand how these transactions are structured so that taxpayers can defer taxes on their investments.
The panel will review these and other critical issues:
• Key timing considerations for drop and swap exchanges
• Satisfying use and holding requirements for drop and swaps
• Avoiding recognition of pre-contribution gain in mixing bowl transactions
• Tax considerations for S corporation drop and swaps