Some owners of franchise operations keep the same locations year after year, while others will sell a location and buy another. Some operators will even buy a franchise in one location with an eye toward improving that location in order to sell it at a profit. Even the parent organization will buy and sell different company owned locations for a variety of reasons.

Regardless, these various owners will face paying taxes on potentially three different types of property:

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If real estate is exchanged, there is even greater benefit to structure the transaction as an exchange. One of the major benefits of creating an exchange in these situations is that the dollars that would have been paid to the IRS can instead be put to work in the new location.

Whole business interests cannot be made subject to an exchange. The regulations require that assets be grouped as like kind and then exchanged. In some cases, owners and advisors have characterized equipment broadly as like kind, but have given up the safe harbors available in the like class provisions within the regulations.

Like kind according to the IRS
What would pass muster with the IRS? Most likely if it is a similar type of business it should be fairly simple to conclude a successful exchange. On the other hand, an exchange of the assets of a restaurant for those of a muffler shop would be unlikely to lend itself to a successful exchange.

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