Reid's transaction

My comment on Polipundit this morning:

Forgive me for a simple question from a conservative lawyer (see heckofanidea.blogspot.com to see my viewpoint more clearly).

What is illegal here? Even the AP video noted early in these comments doesn’t show anything wrong. Mind you the choice of words is completely misleading, but the documents discussed don’t suggest anything wrong legally, hold comment on Senate Ethics Rules for a moment.

Reid bought undeveloped land for $400k. He joins a partner in parlaying their two respective holdings into a unified LLC, taxed as a partnership. The partners each “contributed” – term defined by the Internal Revenue Code – their properties as their initial capital contributions to the company. That contribution would be handle by a deed that on its face always looks like a sale because it needs to show the parties and the value of the property for records and tax purposes.

At the IRS level, Reid needs to document his acquisition cost for the property. It is a tax-free transaction, so the value contributed by law must reflect that he is contributing it at its acquisition cost.

The nature of his asset has now changed from being a real estate asset to being intangible personal property in the form of a membership interest in the LLC.

The taxable event then occurs when the combined real estate of the company is sold. The gains are allocated to the company’s members and taxed accordingly.

The only problem that I have heard is that the Senate disclosures did not reflect the new company membership. This is a pretty significant omission.

The consolidation of property and rezoning by definition in development projects adds considerable value to property. When Walt Disney bought his property in Orlando, he bought many, many individual parcels and consolidated them. Don’t you think that Disney World’s land is worth more as one parcel than a bunch of one-acre plots? Which is harder to find?

Reid failed to disclose correctly. This is not a strange cattle-future moment revisited.

UPDATE: After reading AJ Strata, the picture really needs to focus on the stuff leading up to the deeds that I discussed above. The maneuvering to get that point is the real point of interest.