b'Chapter 191031 Exchange Options, TICs & DSTs We often get calls from clients who ask the question: Can I include a 1031 investor in a syndicate or fund? The sad truth is that syndication and 1031 investors dont mix well. Beforewebeginourdiscussion,justwhatisa1031Exchange? According to the United States Internal Revenue Service (IRS), IRS Tax Code 26 USC 1031 allows a taxpayer to postpone paying tax on the gain from the sale of a business or investment property, as long as they reinvest theproceedsinsimilarpropertyinalike-kindexchange.Thisis commonly known as a 1031 Exchange. The problem that arises for asset managers is that most syndicates are structuredaslimitedliabilitycompanies(LLCs)orlimitedpartnerships (LPs). The interests in a limited liability company or limited partnership are legally considered personal property interests, while interests in real estate are considered real property interests. Thus, if someone sells real estate, and wishes to exchange the proceeds for interests in a syndicate or fund, the exchange wont qualify because it is not a like-kind exchange (i.e., they are trying to exchange real property for personal property interests).Additionally, the IRS classifies limited liability company interests as partnershipinterests,whicharespecificallydisallowedfrombeing exchanged under 1031 Exchange rules. See IRS Rev Proc 2001-22. 177'