Before the Tax Reform Act of 1984, general partnership interests were considered like-kind property which could be exchanged tax-free under Internal Revenue Code ("IRC") section 1031(a). Prior to 1984, the Internal Revenue Service ("IRS") had tried unsuccessfully to convince the courts that the parenthetical clause of section 1031(a), which excludes certain exchanges of interests from the definition of like-kind property, encompassed all types of equity interests. Since the IRC did not specifically exclude partnership interests, judges were very reluctant to adopt the IRS's over-expansive reading of the statute. After making very little headway with the courts, the IRS and treasury turned their attention in Congress. As a result, in 1984 Congress enacted IRC section 1031(a) (2) (D) which explicitly excludes partnership interests from the definition of like-kind property eligible for nonrecognition treatment.
Vincent J. Piazza,
The Like-Kind Exchange of Partnership Interests Under IRC Section 1031(a)(2)(D): An Historical Analysis of Alternative Approaches,
U. Rich. L. Rev.
Available at: http://scholarship.richmond.edu/lawreview/vol26/iss1/5