1031s in cross hairs.

With the use of like-kind--or "1031"--exchanges surging, the IRS is stepping up scrutiny and will research reporting and compliance issues involving the tax strategy.

This popular tax strategy used by real-estate investors generally allow participants to defer, or sometimes even avoid, capital-gains taxes when they sell a business or investment property and replace it with a similar asset within a specified period.

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A report issued by the Treasury Inspector General for Tax Administration urges the IRS to do a better job of explaining the rules surrounding like-kind exchanges to taxpayers, and says clearer guidance will help deter unscrupulous promoters from trying to abuse the system.

In response to the report, the IRS will be revising form instructions, publications and other communications, as well as conduct a research study of reporting and compliance issues involving like-kind exchanges.

Read the report at www.treas.gov/tigta/auditreports/2007reports/200730172fr.html.