Moller: Entitlements and a Broker Listing Did Not Establish That Land Was Held Primarily for Sale

Appeals of Moller Contra Costa RE Investors, LLC et al., 2026-OTA-526, concerned whether undeveloped Dublin land was held primarily for sale and therefore ineligible for the claimed like-kind exchange treatment. The California Office of Tax Appeals reversed FTB’s actions after weighing contemporaneous investment evidence against development entitlements, expenditures and a broker listing.

Dates and authority: The opinion was issued July 23, 2026 and appears in OTA’s October 2026 publication list. It is expressly nonprecedential. This is analysis of a 2015 transaction, not an October ruling or a declaration that every entitled parcel qualifies for a section 1031 exchange. Official opinion, pages 1–2, 16; official publication index.

The Exchange and the Disputed Holding Purpose

Moller acquired the property in February 2013 for $28.25 million. A related company, Braddock & Logan Services, had previously pursued residential planning work and assigned its purchase option to Moller. The development agreement gave Moller rights to pursue a residential project. Moller later transferred the land in August 2015 for $99.5 million as part of a reported deferred exchange and timely identified and acquired qualified replacement properties. Moller, at 2–6.

FTB concluded that the relinquished property had been held primarily for sale and that $63,706,830 of gain had to be recognized, flowing through the entity structure. The consolidated appeals covered an LLC fee and additional taxes at several entity and shareholder levels. The narrow exchange issue was holding purpose, rather than a dispute about the identification or acquisition deadlines for replacement property. Id. at 1–2, 6, 9 & n.7.

Section 1031’s Exclusion Was Not the Same as the Capital-Asset Test

For the transaction before it, OTA applied the requirement that the relinquished and replacement properties be held for productive business use or investment, together with the exclusion for property held primarily for sale. The taxpayer’s intent at the time of the exchange mattered; conduct before and after that time could illuminate it. Unsupported assertions did not satisfy the taxpayer’s burden. Id. at 6–7.

The opinion specifically distinguished section 1031 from section 1221’s capital-asset exclusion. The latter refers to sales to customers in the ordinary course of business. The section 1031 language applied in the case did not contain those additional words. A taxpayer therefore could not settle the exchange question merely by arguing that it was not a real-estate dealer. Id. at 7–8.

OTA considered acquisition and holding purposes, improvements, the frequency and nature of sales, the taxpayer’s business, advertising, broker listings and purpose at sale. No one factor controlled. This analysis should not be replaced by a checklist suggesting that one entity label or a particular holding period guarantees an exchange. Id. at 8.

Why the Investment Evidence Prevailed

The related company’s preformation development activities were relevant context, but FTB had not asserted a basis to disregard the separately formed entities. OTA did not automatically attribute all of Services’ activities to Moller. It examined Moller’s own operating agreement, conduct and communications. Id. at 9–10.

Moller repeatedly rejected unsolicited offers during 2013, including a $92 million offer relatively soon after acquisition. The rejections followed the development agreement and described holding the land for appreciation. OTA treated these communications to unrelated parties as objective contemporaneous evidence supporting investment intent. The internal PG&E correspondence also described preserving or increasing value without intending to build the project. Id. at 10–11, 13–14.

The contrary record was substantial. Moller signed a six-month broker listing, incurred planning and engineering costs, and held development entitlements. OTA did not disregard those facts. It concluded that the listing expired before the eventual transaction, did not produce that transaction, and was not followed by continuous marketing. Legal entitlement work had not become construction of roads, utilities, homes or separate saleable lots. The property remained undeveloped and was transferred as one asset. Id. at 10–15.

Those combined facts supported the result. The opinion did not establish that entitlement spending can never show a sales purpose, that a short listing is irrelevant, or that absence of construction necessarily proves investment. Its own discussion recognizes that a lack of improvements alone does not compel that conclusion. Id. at 13 n.11, 15.

What Was Reversed—and What the Case Does Not Decide

OTA held that Moller did not hold the property primarily for sale under the provision applied to the 2015 exchange and reversed FTB’s actions. The additional interest-abatement issue became moot because no additional interest remained to be abated on the reversed assessments. Id. at 15–16.

The practical lesson is to preserve a dated holding-purpose record: Entity agreements, planning obligations, actual construction activity, marketing and rejected offers, internal decisions, and the final transaction. Explain evidence pointing both ways. A statement that property was “investment” land on a return cannot substitute for that record.

Current transactions require review of the present statutory text, transaction structure and all other exchange requirements. This nonprecedential state opinion does not bind the IRS or establish a reader’s eligibility. The firm’s tax services page and tax procedure FAQ explain its practice and the importance of distinguishing federal and California proceedings.