The short answer
Yes. The Fifth Circuit upheld that structure in Bramblett v. Commissioner, where a partnership that bought land and made five sales in about three years kept capital gain although a corporation owned by the same four people developed and sold the lots. It works only if conduct follows the paper: the investment entity does no developing, the sale between the two is at fair market value, and section 707(b)(2) is checked, because a sale from a partnership to a commonly controlled partnership is ordinary income when the land is inventory to the buyer. Boree shows the other outcome: one entity, perimeter lots sold, an interior bulk sale, and an $8,578,636 gain taxed as ordinary income.
At a glance
| The precedent | Bramblett v. Commissioner: investor partnership and developer corporation with identical owners, capital gain upheld |
|---|---|
| Common ownership | Not enough on its own to make the developer the investor's agent |
| The burden | The taxpayer must prove the investment parcels were segregated from the parcels held for sale |
| Partnership-to-partnership sales | Section 707(b)(2): ordinary income if the same persons own more than 50% and the land is not a capital asset to the buyer |
| Depreciable property | Section 1239 makes gain ordinary on a sale of depreciable property to an entity you control by more than 50% |
| Family counts | Section 267(c) attributes ownership from spouse, siblings, ancestors and descendants |
| Related-party exchange | Section 1031(f): deferral lost if the related person disposes of the property within two years |
| Same taxpayer | The entity that sells the relinquished land is the one that must take title to the replacement |
Two entities can hold the two purposes, and the leading case was decided for the taxpayer
In Bramblett v. Commissioner, 960 F.2d 526 (5th Cir. 1992), a joint venture bought about 265 acres in 1979 and 1980 for investment. Less than a month after forming it, the same four owners, at 50%, 22%, 18% and 10%, formed a corporation to develop and sell land. The venture made four sales, three to the corporation, and in December 1982 sold its remaining land to the corporation for notes totalling $9,830,000, the appraised value.
The Tax Court treated the corporation's lot sales as the venture's business. The Fifth Circuit reversed: common ownership is not enough to prove agency, a corporation's business is not ordinarily attributed to its shareholders, the corporation had a real business reason to exist in liability insulation, and the venture bore the risk that the land would not appreciate.
The split fails when one entity does both jobs or the line is never drawn
Boree v. Commissioner, 837 F.3d 1093 (11th Cir. 2016), quoted the rule from Suburban Realty Co. v. United States, 615 F.2d 171 (5th Cir. 1980): a taxpayer may hold some property for sale and some for investment, but must establish that the investment parcels were segregated from those held for sale, and a mere lack of development on part of a large property does not separate it from the whole.
The owner in Boree said he had always treated the interior acreage as an investment and the perimeter lots as inventory sold to carry the debt. Both sat in one LLC, which called itself the developer in its recorded covenants, sold about sixty lots between 2002 and 2006, deducted rather than capitalised its costs, and then sold 1,067 acres in one closing for $9,608,670. The court saw one business.
Segregation has to exist while you hold the land: a separate entity or at least separate books, capitalised carrying costs and a written purpose. The entity that claims to be the investor cannot be the one that seeks the approvals, builds the road and signs the covenants.
A sale from your investment LLC to your development LLC can be ordinary income anyway
The transfer between the entities is a taxable sale. Section 707(b)(2) makes recognised gain ordinary income when property that is not a capital asset in the buyer's hands is sold between a partnership and a person owning more than 50% of it, or between two partnerships in which the same persons own more than 50%. Lots a development LLC taxed as a partnership buys to sell are not a capital asset to it, so a sale between two such LLCs with the same majority owners produces ordinary income even if the seller was a pure investor.
A corporate buyer sits outside section 707(b)(2) but inside section 1239, which makes gain ordinary on a sale of property that is depreciable to the buyer, between a person and an entity that person controls by more than 50%, including a corporation and partnership with the same majority owners under section 267(b)(10). Raw land is not depreciable, so section 1239 reaches buildings, not lots.
Ownership is counted with family attribution: section 267(c) treats you as owning what your spouse, siblings, ancestors and lineal descendants own, and sections 707(b)(3) and 1239(c)(2) borrow that rule. Bramblett does not discuss either section, so have counsel run them before you copy the structure.
In an exchange, the selling entity is the taxpayer and a related buyer starts a two-year clock
The investment LLC that transfers the relinquished land is the taxpayer that must acquire the replacement, so title goes to that LLC, not to you or the development entity; the same-taxpayer guide covers disregarded entities. The replacement must itself be held for investment under section 1031(a)(1).
If the buyer is your own development entity, you are dealing with a related person as defined in section 1031(f)(3) by reference to sections 267(b) and 707(b)(1), and section 1031(f)(1) removes nonrecognition if the related person disposes of the property within two years, which a developer exists to do. Selling to a family member in an exchange covers the related-buyer rules; the cleaner path is to sell the investment land to an unrelated buyer.
Hypothetical: 80 acres, two LLCs, and the price of the buyer's tax form
Round, hypothetical figures. Your investment LLC bought 80 acres for $800,000 eight years ago and leases it for grazing. A development LLC owned by you and your brother wants 20 acres to plat, appraised at $1,000,000, and you and your brother also own more than half of the investment LLC.
If the development LLC is taxed as a partnership, section 707(b)(2) makes the $800,000 gain ordinary income, because the land is inventory to the buyer. If the developer is a corporation, neither section 707(b)(2) nor section 1239 reaches raw land, so an appraised-value sale follows the Bramblett pattern, provided the investment LLC did none of the development work.
The other 60 acres, still leased and never platted, can go to an unrelated buyer in an exchange; a traditional DST interest suits an owner leaving development, though it cannot be sold on demand, distributions can stop and principal can be lost. Trace the percentages through section 267(c) with your CPA before either entity signs.
Related questions
My investment LLC is a single-member LLC. Does the separation still help?
For the exchange, a disregarded LLC and its owner are the same taxpayer, which is convenient. For dealer status, the courts look at the taxpayer's purpose and conduct, and Boree says the burden is on you to show the investment parcels were segregated; a separate entity with its own books and its own purpose statement is the kind of evidence that meets it, whether or not it files a return.
Can I move lots from the investment LLC into the development LLC when I decide to build?
A contribution is possible, but it leaves no price or date that marks the change of purpose, and Boree says the holding purpose is judged over a reasonable period before the sale. A sale at appraised value with section 707(b)(2) checked is the cleaner record; a contribution leaves the examiner to decide when the land became inventory.
Does the developer have to be a corporation?
No rule requires it; Bramblett accepted liability insulation as the corporation's independent business reason. But section 707(b)(2) taxes sales between commonly controlled partnerships as ordinary income when the buyer holds the land as inventory, and a corporate buyer sits outside that section, though section 1239 still reaches depreciable property.
We own both entities in the same percentages. Is that fatal?
Not by itself. Bramblett involved mirror-image ownership and still held that a corporation's business is not ordinarily attributed to its shareholders. What carried the case was that the developer acted in its own name, could not bind the investor, paid an appraised price and kept its own profit.
Can the investment LLC's gain go into an exchange and the development LLC's profit into a DST?
The investment gain can be deferred in a complete exchange. The development profit is ordinary income with no exchange and no installment method under section 453(l); it can be invested in a DST for cash after tax, with the same illiquidity and loss-of-principal risk as any trust interest. Dealer status and your exchange sorts the two kinds of gain.
Sources
Checked against these publications on October 8, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- Bramblett v. Commissioner, 960 F.2d 526 (5th Cir. 1992)
- Suburban Realty Co. v. United States, 615 F.2d 171 (5th Cir. 1980)
- Boree v. Commissioner, 837 F.3d 1093 (11th Cir. 2016)
- 26 U.S.C. section 707, Transactions between partner and partnership
- 26 U.S.C. section 1239, Gain from sale of depreciable property between certain related taxpayers
- 26 U.S.C. section 267, Losses, expenses, and interest with respect to transactions between related taxpayers
- 26 U.S.C. section 1031, Exchange of real property held for productive use or investment
- 26 U.S.C. section 453, Installment method