All of the property in section 21, Galesburg Township, is zoned M-2, and this is also true of some portions of other sections of land located south and east of Route 41 in Galesburg Township. The size of the realty conveyed is not given, but this Court takes judicial notice that a section of land is 1 square mile or 640 acres.

The proceeds of the Phoenix property sale settlement of August 9, 1991, which had been retained by the Citizens National Bank under the existing escrow agreement, were disbursed as follows:

1996 Tax Ct. Memo LEXIS 235">*245 In these cases, we are met again with the tension between section 1001(c), which broadly provides on the one hand that in the case of a sale, the amount of gain or loss shall be recognized, and, on the other hand, the requirement of section 1031(a), which allows for the nonrecognition of gain or loss where like-kind properties are exchanged to be used in a productive trade or business or for investment. The touchstone of section 1031, at least in this context, is the requirement that there be an exchange of like-kind business or investment properties, as distinguished from a cash sale of property by the taxpayer and a reinvestment of the proceeds in other property. As this Court said in Barker v. Commissioner, 74 T.C. 555">74 T.C. 555, 74 T.C. 555">561 (1980):

The "exchange" requirement poses an analytical problem because it runs headlong into the familiar tax law maxim that the substance of a transaction controls over form. In a sense, the substance of a transaction in which the taxpayer sells property and immediately reinvests the proceeds in like-kind property is not much different from the substance of a transaction in which two parcels are exchanged without cash. Bell Lines, Inc. v. United States, 480 F.2d 710">480 F.2d 710, 480 F.2d 710">711 (4th Cir. 1973).1996 Tax Ct. Memo LEXIS 235">*246 Yet, if the exchange requirement is to have any significance at all, the perhaps formalistic difference between the two types of transactions must, at least on occasion, engender different results. Accord, Starker v. United States, 602 F.2d 1341">602 F.2d 1341, 602 F.2d 1341">1352 (9th Cir. 1979).

The line between an exchange on the one hand and a nonqualifying sale and reinvestment on the other becomes even less distinct when the person who owns the property sought by the taxpayer is not the same person who wants to acquire the taxpayer's property. This means that multiple parties must be involved in the transaction. * * *

As a result, courts have acknowledged that transactions that take the form of a cash sale and reinvestment cannot, in substance, constitute an exchange for purposes of section 1031, even though the end result is the same as a reciprocal exchange of properties. Bell Lines, Inc. v. United States, 480 F.2d 710">480 F.2d 710, 480 F.2d 710">714 (4th Cir. 1973); Carlton v. United States, 385 F.2d 238">385 F.2d 238, 385 F.2d 238">241 (5th Cir. 1967). Thus, our inquiry is narrowly focused on whether the corporation's disposition of the Phoenix property in this1996 Tax Ct. Memo LEXIS 235">*247 case was a sale, as argued by respondent, or an exchange for the Coggeshall and Inness properties, as argued by petitioners.

Petitioners contend that the series of transactions here culminating in the acquisition of the Coggeshall property and the Inness property with funds resulting from the Phoenix property transfer, were steps in an integrated transaction, the substance of which was an exchange of properties within section 1031(a).

In some multiparty transactions, the taxpayer desires to exchange, rather than to sell, his property, but the potential buyer owns no property that the taxpayer wishes to receive in exchange. Thus, some cases involve three or more parties and multiple conveyances of property in an effort to structure an exchange instead of a sale and reinvestment. In some of them, these multiparty transactions have been held to constitute an exchange within the meaning of section 1031. In so holding, the courts have allowed taxpayers great latitude in structuring their transactions and have allowed nonsimultaneous exchanges, see Starker v. United States, 602 F.2d 1341">602 F.2d 1341 (9th Cir. 1979); deposit of proceeds into a bank account controlled1996 Tax Ct. Memo LEXIS 235">*248 by an independent third party before an exchange property is located, J.H. Baird Publishing Co. v. Commissioner, 39 T.C. 608">39 T.C. 608 (1962); transactions in which the intermediary did not acquire legal title to the exchange property, Biggs v. Commissioner, 69 T.C. 905">69 T.C. 905, affd. 632 F.2d 1171">632 F.2d 1171 (5th Cir. 1980); and change from a sale transaction to an exchange transaction even though the property to be received on the exchange was not identified as of the date the original agreement was made, Alderson v. Commissioner, 317 F.2d 790">317 F.2d 790 (9th Cir. 1963), revg. 38 T.C. 215">38 T.C. 215 (1962).

These multiparty cases have explained that section 1031 "only requires that as the end result of an agreement, property be received as consideration for property transferred by the taxpayer without his receipt of, or control over, cash". Coupe v. Commissioner, 52 T.C. 394">52 T.C. 394, 52 T.C. 394">409 (1969).

On the other hand, receipt of or control over cash proceeds by a taxpayer will prevent characterization of a multiparty transaction as an exchange. In the Deficit Reduction1996 Tax Ct. Memo LEXIS 235">*249 Act of 1984, Pub. L. 98-369, sec. 77(a), 98 Stat. 596, an attempt was made to clarify some of the uncertainties that exist in this area by the enactment of a new section 1031(a)(3), which provides:

For purposes of this subsection, any property received by the taxpayer shall be treated as property which is not like-kind property if--

Further attempting to clarify the new statutory provisions under section 1031, section 1.1031(k)-1, Income Tax Regs., effective on or after June 10, 1991, provides in section 1.1031(k)-1(c)(3), Income Tax Regs.:

Replacement property is identified only if it is1996 Tax Ct. Memo LEXIS 235">*250 unambiguously described in the written document or agreement. Real property generally is unambiguously described if it is described by a legal description, street address, or distinguishable name * * *

Section 1.1031(k)-1(c)(4), Income Tax Regs., further provides that the number of replacement properties that will qualify under section 1031(a) to be designated by the taxpayer may not exceed three in number.

Once again, the new regulations, in section 1.1031(k)-1(f), Income Tax Regs., reemphasize:

A transfer of relinquished property in a deferred exchange is not within the provisions of section 1031(a) if, as part of the consideration, the taxpayer receives money or other property. * * *

* * * The taxpayer is in actual receipt of money or property at the time the taxpayer actually receives the money or property or receives the economic benefit of the money or property. * * *

Finally, in section 1.1031(k)-1(g)(3), Income Tax Regs., the new regulations provide that in the case of an exchange in a deferred plan, the exchange will be recognized under section 1031(a) without regard to the receipt of cash if the cash is held in a qualified escrow account, which is defined 1996 Tax Ct. Memo LEXIS 235">*251 as one where (a) the escrow holder is not the taxpayer or a disqualified person, and (b) the escrow agreement expressly limits the taxpayer's rights to receive the cash held in the escrow account.

With these new statutory and regulatory requirements in mind, and recalling that the transfer of the Phoenix property by the corporation took place in August 1991, and the Coggeshall and Inness properties were acquired by it on January 30, 1992, we address the situation in these cases.

The facts show that the designation by the corporation of the intended replacement properties took place on September 20, 1991, which was within the 45 days required under the language of section 1031(a)(3)(A). Both the Coggeshall and Inness properties were received by the corporation on January 30, 1992, within 180 days after the date of the disposition of the Phoenix properties to Penn-Daniels on August 9, 1991, as required by section 1031(a)(3)(B). Only three replacement properties were designated.

Nevertheless, an examination of the facts in this record leads us to conclude that the disposition of the Phoenix property in August 1991 and the acquisition of the Coggeshall and Inness properties in 1992 1996 Tax Ct. Memo LEXIS 235">*252 do not qualify for nontaxable treatment under section 1031(a), because although the alleged escrow agreement with the Citizens National Bank was not with the corporation or a disqualified person, as described in section 1.1031(k)-1(g)(3)(ii)(A), Income Tax Regs., nevertheless the escrow agreement did not expressly limit the corporation's right to receive or use the cash held in the escrow account, as specified by section 1.1031(k)-1(g)(3)(ii)(B), Income Tax Regs. The facts show here that the so-called escrow agreement entered into between the corporation, the Citizens National Bank, and Penn-Daniels was nothing more than a facade. At the settlement of the Phoenix property disposition to Penn-Daniels on August 9, 1991, the stipulated facts recite that the settlement funds were actually received by the corporation, and thereafter were transferred to the bank under the so-called escrow agreement. Further, there were no restrictions upon the right of the corporation, as transferor of the Phoenix property, to use the proceeds in any way which the corporation saw fit. The money was simply held by the bank for future disposition at the direction of the corporation. The only requirement was1996 Tax Ct. Memo LEXIS 235">*253 that the corporation designate the desired replacement properties in 45 days, and the bank was not required to hold the funds for the account of the corporation beyond 180 days. There was no obligation or requirement of any kind upon Penn-Daniels, as the transferee of the Phoenix properties; with the conclusion of the settlement of the transaction, as stipulated by the parties, Penn-Daniels was not required to do anything, was not called upon to do anything, and in fact did nothing. It just took the Phoenix properties and went its way. There were no effective restrictions nor escrow provisions of any kind with respect to the use of the funds by the corporation as transferor of the Phoenix properties nor by Penn-Daniels as the transferee.

We must therefore conclude that the overall transaction--involving the transfer of the Phoenix property by the corporation to Penn-Daniels in August 1991, and thereafter the acquisition of the Coggeshall and Inness properties from parties other than Penn-Daniels--did not qualify as a tax-free exchange under the provisions of section 1031(a). The acquisition of the latter two properties by the corporation did not take place until 1992; we conclude1996 Tax Ct. Memo LEXIS 235">*254 that the transfer of the Phoenix properties by the corporation to Penn-Daniels in August 1991 for cash was taxable under section 1001(c) for 1991 in the normal course, with gain or loss to be computed as provided in section 1001(a) and (b).

Decisions will be entered under Rule 155.