Your client, Western Development Co Ltd Owns a substantial part of real estate which can be developed at the base of Burnt Mountain. Your client plans to develop most of this real estate with a planned community to be called Hidden Village. It plans to sell eventually all the residential and commercial facilities may have to be leased by it to occupants for a few years prior to their sale. Your client however does not wish to be a lessor for any longer period than economically required

At the present time most of the land which your client plans to use for Hidden Village is unimproved. The major exceptions are the maintenance facility and administration building, which belong to the Burnt Mountain Skiing Company. Burnt Mountain Skiing Company holds the license to conduct skiing on the various trails on Burnt Mountain, Run the ski lifts and conduct a ski school at Burnt Mountain. Your client would like to acquire the property owned by Burnt Mountain Skiing Company in the Hidden Village Area. Obviously, Burnt Mountain Skiing Company must have a maintenance facility and your client feels that an area which it now owns and on which it thinks development is unlikely, called the Divide site, would be a good site for the maintenance facility. In addition, your client is prepared to have the Burnt Mountain Skiing Company administration facilities located in one of the new commercial building to be constructed by your client in Hidden Village

The executive vice president of your client sends an emailed to the general manager of Burnt Mountain Skiing Company proposing the changes in location of the Burnt Mountain Skiing Company maintenance and administration facilities. You have been given the letter for your review to determine whether the proposals contained therein present any income tax problems

The email

Set forth below is a proposal for an exchange by Western Development Co LTD. (Western Development) of its Divide site and 10,000 square feet of new administration space for the Burnt Mountain Skiing Company (Burnt Mountain) Hidden Village Property, Exchange of property (Like Kind Exchange)

Maintenance Site

Western development will exchange its divide maintenance site for the hidden village maintenance site belonging to Burnt Mountain. No work will be done at the Divide site before the exchange. In addition, Western Development will pay Burnt Mountain that portion of the new maintenance facility construction costs the equal the sum of:

$750,000, representing the replacement value of Burnt Mountains existing maintenance facility and

Approximately $450,000 towards infrastructure for the new facility (roads, utilities etc.)

2. Administrative Space

Western Development will exchange a new administration building, which it will construct (10,000 square feet of Like space) for the balance of the Hidden Village property owned by Burnt Mountain, including the existing administration building. Burnt Mountain currently has approximately 10,000 square feet of administrative space in the existing space in a separate building on a square foot basis with equivalent tenant improvements and number of parking space.