Presentation delivered by Angie Pulley, Director, Income Tax, Planning and Accounting, Coca Cola Bottling Company at the Tax Officers Summit 2016 in FL

1. Exchanging a Trade or
Business under the IRC
§1031 Like-Kind Exchange
Rules
Tax Officers Summit
September 26, 2016
Angela Pulley, Sr. Tax Director
Coca-Cola Bottling Co. Consolidated

2. Agenda
2

3. About Coca-Cola Bottling Co.
Consolidated (“CCBCC”)
IRC §1031 Like-Kind Exchange Basics
Exchanging a Trade or Business
State Considerations
Agenda
3

4. Coca-Cola Bottling Co. Consolidated
● Founded in 1902
● 2015 revenue of $2.3 billion
● Produces, Markets, & Distributes primarily
products of The Coca-Cola Company
● Operates in 15 states (includes D.C.)
● Capital & Intangible Assets represent ~$1.6B
● 7 production and 62 distribution facilities
● ~12,000 employees
● Continued growth and expansion within
the Coca-Cola system
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5. Beverage Portfolio
Sparkling & Energy
(carbonated)
80% of Volume
Still
(non-carbonated)
20% of Volume
2000 2006 Today
U.S. Non-Alcoholic Beverage Category
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6. IRC §1031 Like-Kind
Exchange Basics
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7. Like-Kind Exchange Basics
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Held for investment or productive use in a trade
or business, and not held for sale
Held for productive use in a trade or business
can be exchanged for other property held for
use in a trade or business, or can be exchanged
for investment property
Similar with respect to its nature or character,
and not its grade or quality

8. 8
Like-Kind in Character or Nature
Not Like-Kind in
Character or Nature

9. Like-Kind Exchange Basics
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FMV of the transferred property (“relinquished
property“) must equal the acquired property
(“replacement property”)
Liabilities assumed are offset by liabilities
relieved, with any net liabilities assumed
allocated to relinquished property
Tax basis for replacement property is determined
by the adjusted tax basis of the relinquished
property with certain adjustments
Completion of Form 8824, Like-Kind Exchange

10. Exchanging a Trade or
Business
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11. Exchanging a Trade or Business
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Production Rights
Distribution
Rights
Trailers
Trucks
Land/Buildings
Computers/Printers/
Furniture/Fixtures
Forklifts
Vending
Machines
Inventory &
Working Capital
Goodwill and
Going Concern

12. Exchanging a Trade or Business
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Territory A Operation
1. Working capital
2. Real property
3. Personal property
4. Production and
Distribution rights
5. Goodwill and going
concern
Territory B Operation
1. Working capital
2. Real property
3. Personal property
4. Production and
Distribution rights
5. Goodwill and going
concern
CCBCC exchanged Territory A operation for a 3rd
party Territory B operation to realign territories
for greater operating synergies

13. Exchanging a Trade or Business
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Qualifying Property
1. Real property
2. Personal property
Non-Qualifying Property
1. Working capital
2. Goodwill and going
concern
The following represents qualifying and non-
qualifying property in accordance with the like-kind
exchange rules:
A private letter ruling was requested and
obtained from the IRS to determine if production
and distribution rights were qualifying property

14. The following facts and circumstances were submitted
to the IRS regarding the production and distribution
rights:
Exchanging a Trade or Business
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Territory A Operation
1. Rights to manufacture
and distribute certain
beverage products
2. Rights to distribute
only certain other
beverage products
3. Rights relate to certain
geographical
territories and include
marketing and quality
control requirements
Territory B Operation
1. Rights to manufacture
and distribute certain
beverage products
2. Rights to distribute
only certain other
beverage products
3. Rights relate to certain
geographical
territories and include
marketing and quality
control requirements
EXCHANGE

15. IRS determined that the intangible property
exchanged represented two separate like-kind
exchange groups
Exchanging a Trade or Business
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“Dual activity agreements” – represents
production and distribution rights
“Single activity agreements” – represents
distribution only rights

16. Exchanging a Trade or Business
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Integrated business process with respect to
production and distribution within same agreement
Close economical and unique historical connection
between production/distribution
Differences between geographical territories, quality
control and marketing requirements were deemed to
represent grade or quality
IRS rationale in determining the “Dual Activity
Agreement” exchange group was based on the
following:

17. Exchanging a Trade or Business
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Certain beverage products shared similar
processes, common design and similar distribution
Certain brands, ingredients, and packaging related
to grade or quality
Nature and character of rights and underlying
property are like-kind
IRS rationale in determining the “Dual Activity
Agreement” exchange group was based on the
following:

18. Exchanging a Trade or Business
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Represented a single business activity
Differences between geographical territories,
quality control and marketing requirements
were deemed to represent grade or quality
IRS rationale in determining the “Single Activity
Agreement” exchange group was based on the
following:

19. Exchanging a Trade or Business
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Certain beverage products shared similar processes,
common design and similar distribution
Certain brands, ingredients, and packaging related
to grade or quality
Nature and character of rights and underlying
property are like-kind
IRS rationale in determining the “Single Activity
Agreement” exchange group was based on the
following:

20. Exchanging a Trade or Business
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Qualifying Property
1. Real property
2. Personal property
3. Dual Activity
4. Single Activity
ty
Non-Qualifying Property
1. Working capital
2. Goodwill and going
concern
A final determination of qualifying and non-
qualifying property is as follows:

21. Multiple assets representing personal property within
a trade or business is required to be sorted into
separate like-kind exchange groups
Class lives determined under Rev. Proc. 87-56
Product class (same NAICS code)
Exchanging a Trade or Business
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Examples of multiple asset exchange groups:
-Vending machines-Asset Class 57.0
-Over the Road Tractor units-Asset Class 00.26
-Trailers-Asset Class 00.26
-Computers/Peripheral Equipment-Asset Class 00.11

22. Any Surplus or Deficiency must be determined
for each separate exchange group
Exchanging a Trade or Business
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Surplus = FMV of Replacement Property >
FMV of Relinquished Property
Deficiency = FMV of Replacement Property <
FMV of Relinquished Property

23. Any Realized and Recognized Gain must be
determined for each separate exchange group
Exchanging a Trade or Business
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Realized Gain = FMV of Relinquished
Property minus Tax Basis
Recognized Gain = Lesser of Deficiency or
Realized Gain
Any losses associated with exchange groups
are not recognized

24. Tax Basis must be determined for each separate
exchange group and allocated to each individual asset
Exchanging Trade or Business
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Treasury Reg. 1.168(i)-6 provides rules and
examples on depreciation for replacement and
relinquished property
Tax Basis of Relinquished Property
+ Net Liabilities Assumed (allocated)
+ Recognized Gain
+ Surplus
- Deficiency
= Tax Basis of Replacement Property

25. Tax gain or loss must be recognized for non-
qualifying property (working capital,
goodwill and going concern) representing
the difference between FMV and any
available tax basis
Report on Form 8594-Asset Acquisition
Statement
Exchanging Trade or Business
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26. State Implications
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27. State Considerations
Most states conform to the IRC§1031 Like-Kind
Exchange Rules
State tax basis is generally determined consistent
with the federal rules, however could be different due
to bonus depreciation
Gain could be allocated or apportioned
Gain or proceeds may be included or excluded within
the sales factor
State sales taxes and other transfer taxes may be
applicable to assets transferred in 1031 exchanges
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28. Questions??
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angie.pulley@ccbcc.com