Thursday, April 28, 2016

Deferred cat exchange with a famous neighbor

I won't give the name, because that would be creepy, but there's a famous person living on our block - famous enough to have drawn, not just tourists,but also paparazzi.  Let's just call this famous person FP.

I see FP occasionally on the street, but have never said anything because it would be invasive and probably unwanted.  One thing about New Yorkers - we generally let famous people be.  But once, close to 10 years ago, our cat Buddy, who was an extraordinarily gifted escape artist in his youth, got out our backdoor, went over the fence, and disappeared for almost a week.

I finally saw him, from several backyards over, sitting on FP's balcony.  He started to meow at me, perhaps ready for his excellent adventure to end.

One of the mysteries was how he had gotten to this balcony.  It was on the second floor, and there was no obvious access, even for a cat (e.g., no steps or overhanging tree).

FP was away (it was NYC summer, after all).  But with help from a neighbor we were able to reach FP's "people" and get Buddy back.  He looked just fine, by the way - neither scrawny nor ragged nor bloody, despite all the hazards that a cat may face in the urban outdoors.  But Buddy is calm and resourceful - I would even say rational - as well as willing to enlist human help (especially that of humans with food).

OK, let's go forward a few years.  This morning, I found this individual, pressed right up against our front door.  (Brown tabby like Buddy, but long-haired and female.)  The picture may not do her full justice.  She was cowering a bit, but she didn't act especially afraid of me (and liked being petted).  When we opened the door, she went right in.  We gave her food, water, and a litter box, while isolating her from our already numerous cats.

She had a collar with name tag and phone number. The address that came up on a Google search of the number is 0.7 miles away.  So we were wondering how she got to our place.  But no less than Buddy after his adventure, she was sleek, clean, and seemed fine.

When we got through to the phone number that was listed on her collar, it eventually turned out to be one of FP's people,   That solved one mystery: she had apparently just gone down the street from FP's house, rather than covering 7/10 of a mile across lower Manhattan.  Said person promptly came and reclaimed the cat on FP's behalf, so the story has a happy ending for everyone.  (Not that we mightn't have considered keeping her if unable to find where she came from.)

If I were teaching Tax I (Individual Income Taxation) this semester, I suppose I would ask the students: Might this (at least, with a few harmless tweaks to the actual facts) count as a deferred like-kind exchange under Internal Revenue Code section 1031?  Let's see:

Exchange? Obviously no - we each just got our own cats back.  But here's where we can change the facts, so as to make the rest of the analysis potentially relevant. Suppose that it had been an actual and intended trade, in which FP gave us Buddy some years ago, in exchange for our furnishing this individual to FP earlier today.  After all, they say possession is 9/10 of the law, and each of us had physical custody of the other's cat, however briefly.  So let's just overlook this point, even though it's negatively dispositive, and do the rest of the analysis.

Like kind?  Yes.  They're even both tabbies, albeit long-hair versus short-hair.  But I think this requirement would still be met, as between two house pets, even if one of them were an octopus (which apparently make interesting companions, at least if you can care for them properly). See Code section 1033, which provides that "involuntary conversions" of property are tax-free if the "before" and "after" properties are "similar or related in service or use."  This is generally viewed as a narrower standard than like-kind under section 1031, so the fact that both are pets should do it under section 1031 as well.  (And let's suppose that we actually held the girl as a pet, as we would have been willing to do.)

While section 1031(e) states that "livestock of different sexes are not property of a like kind,"  I'd give a "will" opinion to the effect that cats are not livestock. defines livestock as, among other things, "useful animals," and cats - despite their mousing abilities, which they generally will deploy free of charge - appear to glory in not being "useful."

Property? Well, it's said that you can never really own a cat (it's more like the reverse).  But sometimes they let us pretend otherwise.

Held for productive use in a trade or business?  If you ever try to make "productive use" of a cat, good luck with that, and you have my sympathies.  As an aside, Key and Peele just completed a movie in which they co-star with a kitten, and apparently - even with multiple actors to play the one role - they found it almost as challenging as the Coen brothers did, when they made Inside Llewyn Davis.  (There's a story about this somewhere on the Internet - one of the Coens says they swore, never again.)

Held for investment?  As it happens, no, although at least here (for a fertile member of a show-worthy breed) we'd be in the realm of feasibility.

Within the 45-day identification period and the 180-day transfer period for deferred exchanges?  No, not even close.

Not looking good for the like-kind exchange, so it's certainly a relief that there was no taxable event here to begin with.  This spares us the valuation problem (cats are cheap, leading to low basis, but their owners may highly value them).

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