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Internal Revenue Code Section 1031
Internal Revenue Code (IRC) Section 1031, which pertains to tax deferral for like-kind exchanges of assets, has been a mainstay of the tax code since 1921.  Originally is was thought that exchanges had to be simultaneous and that the taxpayer had to give up the existing property, the “relinquished property,” and receive the new “replacement property” from the buyer of the relinquished property.  The landmark legal decision in Starker v. U.S. held that exchanges did not have to be simultaneous and Internal Revenue Service Regulations: IRC§1031 published in 1991 provided a technique whereby the taxpayer did not have to receive the replacement property from the buyer. In fact, neither the taxpayer’s buyer nor seller need to provide their cooperation in order for the taxpayer to execute an exchange.
What assets are like-kind to one another?
Determining that assets are like-kind is generally more broad when dealing with real estate than when dealing with personal property.  A regular owning of real estate is known as a fee interest.  Any type of real estate is like-kind to any other type of real estate.  So a parcel of vacant land held for investment would be like-kind to a commercial building, a condominium held for rent is like-kind to an industrial building, and so on. 
Some non-traditional asset holdings have also been found to be like-kind to a real estate fee interest such as options, timber and water rights, installment sale agreements, oil and gas rights, co-ops, improvements made upon real estate, and lessee’s interests under long term leases and easements.
Is a landowner’s income stream from a cell phone tower lease exchangeable?
A lessee’s interest in a long term lease (30 or more years) including options has been considered like-kind to real estate for a long time.  The same cannot be said about a property owner’s interest, as lessor, in a lease or long term lease. The value of an ongoing stream of income from a lease, including a cell phone tower lease, is considered rent and not a real estate interest.  However, a private letter ruling (PLR 201149003) put out by the IRS in 2011 suggested a way to effectively convert that stream of income to an interest in real estate that would become like-kind to any other fee interest in real estate. 
How may cell towers be included in a 1031 exchange?
As noted above, there is a lot of authority that easements are like-kind to real estate.  Under the PLR, if a cell tower is part of a permanent easement and the value of the easement is based upon the value of the cell tower lease, then a sale of the easement can be exchanged for other fee interests in real estate. Even if the cell phone tower is not located on an easement, the taxpayer may create the easement prior to the sale of the cell tower and effectively sell the cell tower by selling that easement. 
Easements generally can be of a limited term or a perpetual term.  The private letter ruling referred to above was based upon a perpetual term easement.  Easements can be used for various purposes, such as granting access to property or granting possessory rights in property.  It is possible that the IRS would look at the nature of a particular easement to determine whether, if it were long term, it would be like-kind to a fee interest in real estate.  It may be that a possessory-type, long-term easement would receive the same tax treatment as a permanent easement, but this was not dealt with in the PLR (See also

Internal Revenue Code Section 1031
Internal Revenue Code (IRC) Section 1031, which pertains to tax deferral for like-kind exchanges of assets, has been a mainstay of the tax code since 1921.  Originally is was thought that exchanges had to be simultaneous and that the taxpayer had to give up the existing property, the “relinquished property,” and receive the new “replacement property” from the buyer of the relinquished property.  The landmark legal decision in Starker v. U.S. held that exchanges did not have to be simultaneous and Internal Revenue Service Regulations: IRC§1031 published in 1991 provided a technique whereby the taxpayer did not have to receive the replacement property from the buyer. In fact, neither the taxpayer’s buyer nor seller need to provide their cooperation in order for the taxpayer to execute an exchange.
What assets are like-kind to one another?
Determining that assets are like-kind is generally more broad when dealing with real estate than when dealing with personal property.  A regular owning of real estate is known as a fee interest.  Any type of real estate is like-kind to any other type of real estate.  So a parcel of vacant land held for investment would be like-kind to a commercial building, a condominium held for rent is like-kind to an industrial building, and so on. 
Some non-traditional asset holdings have also been found to be like-kind to a real estate fee interest such as options, timber and water rights, installment sale agreements, oil and gas rights, co-ops, improvements made upon real estate, and lessee’s interests under long term leases and easements.
Is a landowner’s income stream from a cell phone tower lease exchangeable?
A lessee’s interest in a long term lease (30 or more years) including options has been considered like-kind to real estate for a long time.  The same cannot be said about a property owner’s interest, as lessor, in a lease or long term lease. The value of an ongoing stream of income from a lease, including a cell phone tower lease, is considered rent and not a real estate interest.  However, a private letter ruling (PLR 201149003) put out by the IRS in 2011 suggested a way to effectively convert that stream of income to an interest in real estate that would become like-kind to any other fee interest in real estate. 
How may cell towers be included in a 1031 exchange?
As noted above, there is a lot of authority that easements are like-kind to real estate.  Under the PLR, if a cell tower is part of a permanent easement and the value of the easement is based upon the value of the cell tower lease, then a sale of the easement can be exchanged for other fee interests in real estate. Even if the cell phone tower is not located on an easement, the taxpayer may create the easement prior to the sale of the cell tower and effectively sell the cell tower by selling that easement. 
Easements generally can be of a limited term or a perpetual term.  The private letter ruling referred to above was based upon a perpetual term easement.  Easements can be used for various purposes, such as granting access to property or granting possessory rights in property.  It is possible that the IRS would look at the nature of a particular easement to determine whether, if it were long term, it would be like-kind to a fee interest in real estate.  It may be that a possessory-type, long-term easement would receive the same tax treatment as a permanent easement, but this was not dealt with in the PLR (See also

Internal Revenue Code Section 1031
Internal Revenue Code (IRC) Section 1031, which pertains to tax deferral for like-kind exchanges of assets, has been a mainstay of the tax code since 1921.  Originally is was thought that exchanges had to be simultaneous and that the taxpayer had to give up the existing property, the “relinquished property,” and receive the new “replacement property” from the buyer of the relinquished property.  The landmark legal decision in Starker v. U.S. held that exchanges did not have to be simultaneous and Internal Revenue Service Regulations: IRC§1031 published in 1991 provided a technique whereby the taxpayer did not have to receive the replacement property from the buyer. In fact, neither the taxpayer’s buyer nor seller need to provide their cooperation in order for the taxpayer to execute an exchange.
What assets are like-kind to one another?
Determining that assets are like-kind is generally more broad when dealing with real estate than when dealing with personal property.  A regular owning of real estate is known as a fee interest.  Any type of real estate is like-kind to any other type of real estate.  So a parcel of vacant land held for investment would be like-kind to a commercial building, a condominium held for rent is like-kind to an industrial building, and so on. 
Some non-traditional asset holdings have also been found to be like-kind to a real estate fee interest such as options, timber and water rights, installment sale agreements, oil and gas rights, co-ops, improvements made upon real estate, and lessee’s interests under long term leases and easements.
Is a landowner’s income stream from a cell phone tower lease exchangeable?
A lessee’s interest in a long term lease (30 or more years) including options has been considered like-kind to real estate for a long time.  The same cannot be said about a property owner’s interest, as lessor, in a lease or long term lease. The value of an ongoing stream of income from a lease, including a cell phone tower lease, is considered rent and not a real estate interest.  However, a private letter ruling (PLR 201149003) put out by the IRS in 2011 suggested a way to effectively convert that stream of income to an interest in real estate that would become like-kind to any other fee interest in real estate. 
How may cell towers be included in a 1031 exchange?
As noted above, there is a lot of authority that easements are like-kind to real estate.  Under the PLR, if a cell tower is part of a permanent easement and the value of the easement is based upon the value of the cell tower lease, then a sale of the easement can be exchanged for other fee interests in real estate. Even if the cell phone tower is not located on an easement, the taxpayer may create the easement prior to the sale of the cell tower and effectively sell the cell tower by selling that easement. 
Easements generally can be of a limited term or a perpetual term.  The private letter ruling referred to above was based upon a perpetual term easement.  Easements can be used for various purposes, such as granting access to property or granting possessory rights in property.  It is possible that the IRS would look at the nature of a particular easement to determine whether, if it were long term, it would be like-kind to a fee interest in real estate.  It may be that a possessory-type, long-term easement would receive the same tax treatment as a permanent easement, but this was not dealt with in the PLR (See also

Franchise Assets are no longer eligible for a 1031 Exchange due to the Tax Cuts and Jobs Act of 2017.
 
Can Franchise Assets be Exchanged?
People tend to equate tax deferred exchanges with real estate but exchanges can be equally advantageous when selling and buying franchises. In 1991 the tax deferred exchange regulations (Internal Revenue Service Regulations: IRC§1031) took effect, making completing an exchange easier and simpler than ever before.  These regulations allowed for the removal of the buyer of the old property and the seller of the new property as participants in a taxpayer’s exchange, with the addition of the qualified intermediary (QI).  Also, as part of these new regulations, the asset sale and asset purchase that comprised an exchange could be separated by up to 180 days.  Before that it was generally understood that the sale of an asset and the purchase of an another had to take place simultaneously.
It wasn’t long before many owners of real estate began exchanging using the safe harbor procedures set forth in the regulations.  Although personal property exchanges were covered in depth in the regulations, generally taxpayers’ use of the exchange rules to do personal property exchanges lagged behind the use for real estate transactions.  Even as personal property exchanges of machinery, equipment, vehicles, etc. gained traction, exchanges of certain intangible personal property interests such as franchise rights continued to be very underutilized.  Neither owner-operators nor their professional advisors picked up on the fact that sales and purchases of franchises could be structured to defer taxes.
Since becoming law in 1921, the rationale for the inclusion of tax deferred exchanges in the IRS code, has been that a taxpayer who is vested with an asset (such as a franchise) and who receives in exchange other like-kind assets (such as of a similar franchise or franchises in a different location), and no cash, there is a continuity of holding the same or similar assets.  Since the same kind of assets were sold and bought and the taxpayer pocketed no cash, the transaction isn’t seen as a taxable event.  The gain on the sale of the first franchise assets, the relinquished property, is deferred until the acquired like-kind franchise assets, the replacement property, are sold without a further exchange.
What Qualifies for Tax Deferral upon the Sale of a Franchise?
Perhaps the most common franchise exchanges are those that involve fast food restaurants.  An owner might have one or more franchise locations that have greatly increased in value over time, value that the owner would like to parlay into additional restaurants.  The exchange of such a business was formerly a more straightforward matter, because the IRS regarded the business as a whole entity that included the value of any underlying assets. This changed shortly before 1991’s exchange regulations, and now the IRS requires that each underlying asset be seperated and valued individually.
For franchise exchanges this means that the value of the franchise rights are separate from the value of the furniture, fixtures and equipment (FF&E). If a restaurant franchise, valued at $300,000 for the franchise rights and $200,000 for the FF&E, is exchanged for another restaurant franchise with rights valued at $200,000 and FF&E valued at $300,000, the $100,000 difference between the franchise rights sold and those bought would be taxed, even though, taken as whole entities, the two businesses are of equal value.
It’s worth noting that any value associated with goodwill, including trademarks and trade names, is not capable of being exchanged, because the regulations state that goodwill is “inherently unique and inseparable from the business.”  For this reason, sellers of businesses may wish to minimize the value of the goodwill and increase another component asset of the sale which will be capable of receiving like-kind exchange treatment.  Inventory and cash-on-hand are also not part of a franchise exchange since, unlike equipment, these assets are not held for use in a business or trade.
Retaining the Services of a Qualified Intermediary
A qualified intermediary (QI) is necessary for most exchanges in which the relinquished assets are sold to a buyer and the replacement assets are being acquired from a seller, who is not the same as the buyer of the relinquished assets. The taxpayer essentially sells the relinquished assets to the QI, who in turn sells them to the buyer. Similarly, the taxpayer purchases the replacement assets from the QI, who acquires those assets from the seller.  In effect, the taxpayer completes an exchange with the QI. 
The regulations are purposely liberal on the mechanics of transferring the relinquished and replacement assets to and from the QI.  The standard practice is for the taxpayer to “assign rights,” in the sale and purchase agreements, to the QI.  For tax purposes, this means that the QI’s right to receive the property is the same as if the QI took title from the taxpayer to the relinquished property and transferred title of the replacement property to the taxpayer.  Notwithstanding the assignment of rights to the QI, the taxpayer is permitted to make a direct transfer of the assets by bill of sale, or otherwise, of the relinquished assets to the buyer and receive the replacement assets by direct transfer from the seller. There are a few other requirements as well to meet this safe harbor.

Franchise Assets are no longer eligible for a 1031 Exchange due to the Tax Cuts and Jobs Act of 2017.
 
Can Franchise Assets be Exchanged?
People tend to equate tax deferred exchanges with real estate but exchanges can be equally advantageous when selling and buying franchises. In 1991 the tax deferred exchange regulations (Internal Revenue Service Regulations: IRC§1031) took effect, making completing an exchange easier and simpler than ever before.  These regulations allowed for the removal of the buyer of the old property and the seller of the new property as participants in a taxpayer’s exchange, with the addition of the qualified intermediary (QI).  Also, as part of these new regulations, the asset sale and asset purchase that comprised an exchange could be separated by up to 180 days.  Before that it was generally understood that the sale of an asset and the purchase of an another had to take place simultaneously.
It wasn’t long before many owners of real estate began exchanging using the safe harbor procedures set forth in the regulations.  Although personal property exchanges were covered in depth in the regulations, generally taxpayers’ use of the exchange rules to do personal property exchanges lagged behind the use for real estate transactions.  Even as personal property exchanges of machinery, equipment, vehicles, etc. gained traction, exchanges of certain intangible personal property interests such as franchise rights continued to be very underutilized.  Neither owner-operators nor their professional advisors picked up on the fact that sales and purchases of franchises could be structured to defer taxes.
Since becoming law in 1921, the rationale for the inclusion of tax deferred exchanges in the IRS code, has been that a taxpayer who is vested with an asset (such as a franchise) and who receives in exchange other like-kind assets (such as of a similar franchise or franchises in a different location), and no cash, there is a continuity of holding the same or similar assets.  Since the same kind of assets were sold and bought and the taxpayer pocketed no cash, the transaction isn’t seen as a taxable event.  The gain on the sale of the first franchise assets, the relinquished property, is deferred until the acquired like-kind franchise assets, the replacement property, are sold without a further exchange.
What Qualifies for Tax Deferral upon the Sale of a Franchise?
Perhaps the most common franchise exchanges are those that involve fast food restaurants.  An owner might have one or more franchise locations that have greatly increased in value over time, value that the owner would like to parlay into additional restaurants.  The exchange of such a business was formerly a more straightforward matter, because the IRS regarded the business as a whole entity that included the value of any underlying assets. This changed shortly before 1991’s exchange regulations, and now the IRS requires that each underlying asset be seperated and valued individually.
For franchise exchanges this means that the value of the franchise rights are separate from the value of the furniture, fixtures and equipment (FF&E). If a restaurant franchise, valued at $300,000 for the franchise rights and $200,000 for the FF&E, is exchanged for another restaurant franchise with rights valued at $200,000 and FF&E valued at $300,000, the $100,000 difference between the franchise rights sold and those bought would be taxed, even though, taken as whole entities, the two businesses are of equal value.
It’s worth noting that any value associated with goodwill, including trademarks and trade names, is not capable of being exchanged, because the regulations state that goodwill is “inherently unique and inseparable from the business.”  For this reason, sellers of businesses may wish to minimize the value of the goodwill and increase another component asset of the sale which will be capable of receiving like-kind exchange treatment.  Inventory and cash-on-hand are also not part of a franchise exchange since, unlike equipment, these assets are not held for use in a business or trade.
Retaining the Services of a Qualified Intermediary
A qualified intermediary (QI) is necessary for most exchanges in which the relinquished assets are sold to a buyer and the replacement assets are being acquired from a seller, who is not the same as the buyer of the relinquished assets. The taxpayer essentially sells the relinquished assets to the QI, who in turn sells them to the buyer. Similarly, the taxpayer purchases the replacement assets from the QI, who acquires those assets from the seller.  In effect, the taxpayer completes an exchange with the QI. 
The regulations are purposely liberal on the mechanics of transferring the relinquished and replacement assets to and from the QI.  The standard practice is for the taxpayer to “assign rights,” in the sale and purchase agreements, to the QI.  For tax purposes, this means that the QI’s right to receive the property is the same as if the QI took title from the taxpayer to the relinquished property and transferred title of the replacement property to the taxpayer.  Notwithstanding the assignment of rights to the QI, the taxpayer is permitted to make a direct transfer of the assets by bill of sale, or otherwise, of the relinquished assets to the buyer and receive the replacement assets by direct transfer from the seller. There are a few other requirements as well to meet this safe harbor.

Franchise Assets are no longer eligible for a 1031 Exchange due to the Tax Cuts and Jobs Act of 2017.
 
Can Franchise Assets be Exchanged?
People tend to equate tax deferred exchanges with real estate but exchanges can be equally advantageous when selling and buying franchises. In 1991 the tax deferred exchange regulations (Internal Revenue Service Regulations: IRC§1031) took effect, making completing an exchange easier and simpler than ever before.  These regulations allowed for the removal of the buyer of the old property and the seller of the new property as participants in a taxpayer’s exchange, with the addition of the qualified intermediary (QI).  Also, as part of these new regulations, the asset sale and asset purchase that comprised an exchange could be separated by up to 180 days.  Before that it was generally understood that the sale of an asset and the purchase of an another had to take place simultaneously.
It wasn’t long before many owners of real estate began exchanging using the safe harbor procedures set forth in the regulations.  Although personal property exchanges were covered in depth in the regulations, generally taxpayers’ use of the exchange rules to do personal property exchanges lagged behind the use for real estate transactions.  Even as personal property exchanges of machinery, equipment, vehicles, etc. gained traction, exchanges of certain intangible personal property interests such as franchise rights continued to be very underutilized.  Neither owner-operators nor their professional advisors picked up on the fact that sales and purchases of franchises could be structured to defer taxes.
Since becoming law in 1921, the rationale for the inclusion of tax deferred exchanges in the IRS code, has been that a taxpayer who is vested with an asset (such as a franchise) and who receives in exchange other like-kind assets (such as of a similar franchise or franchises in a different location), and no cash, there is a continuity of holding the same or similar assets.  Since the same kind of assets were sold and bought and the taxpayer pocketed no cash, the transaction isn’t seen as a taxable event.  The gain on the sale of the first franchise assets, the relinquished property, is deferred until the acquired like-kind franchise assets, the replacement property, are sold without a further exchange.
What Qualifies for Tax Deferral upon the Sale of a Franchise?
Perhaps the most common franchise exchanges are those that involve fast food restaurants.  An owner might have one or more franchise locations that have greatly increased in value over time, value that the owner would like to parlay into additional restaurants.  The exchange of such a business was formerly a more straightforward matter, because the IRS regarded the business as a whole entity that included the value of any underlying assets. This changed shortly before 1991’s exchange regulations, and now the IRS requires that each underlying asset be seperated and valued individually.
For franchise exchanges this means that the value of the franchise rights are separate from the value of the furniture, fixtures and equipment (FF&E). If a restaurant franchise, valued at $300,000 for the franchise rights and $200,000 for the FF&E, is exchanged for another restaurant franchise with rights valued at $200,000 and FF&E valued at $300,000, the $100,000 difference between the franchise rights sold and those bought would be taxed, even though, taken as whole entities, the two businesses are of equal value.
It’s worth noting that any value associated with goodwill, including trademarks and trade names, is not capable of being exchanged, because the regulations state that goodwill is “inherently unique and inseparable from the business.”  For this reason, sellers of businesses may wish to minimize the value of the goodwill and increase another component asset of the sale which will be capable of receiving like-kind exchange treatment.  Inventory and cash-on-hand are also not part of a franchise exchange since, unlike equipment, these assets are not held for use in a business or trade.
Retaining the Services of a Qualified Intermediary
A qualified intermediary (QI) is necessary for most exchanges in which the relinquished assets are sold to a buyer and the replacement assets are being acquired from a seller, who is not the same as the buyer of the relinquished assets. The taxpayer essentially sells the relinquished assets to the QI, who in turn sells them to the buyer. Similarly, the taxpayer purchases the replacement assets from the QI, who acquires those assets from the seller.  In effect, the taxpayer completes an exchange with the QI. 
The regulations are purposely liberal on the mechanics of transferring the relinquished and replacement assets to and from the QI.  The standard practice is for the taxpayer to “assign rights,” in the sale and purchase agreements, to the QI.  For tax purposes, this means that the QI’s right to receive the property is the same as if the QI took title from the taxpayer to the relinquished property and transferred title of the replacement property to the taxpayer.  Notwithstanding the assignment of rights to the QI, the taxpayer is permitted to make a direct transfer of the assets by bill of sale, or otherwise, of the relinquished assets to the buyer and receive the replacement assets by direct transfer from the seller. There are a few other requirements as well to meet this safe harbor.