CIR

This case requires us to determine whether two like-kind exchanges involving related parties qualify for nonrecognition treatment under 26 U.S.C. § 1031 . Under the circumstances presented by this case, we conclude that they do not, and we affirm the judgment of the Tax Court. We have jurisdiction over this appeal pursuant to 26 U.S.C. § 7482 (a).

I

Teruya Brothers, Ltd. (“Teruya”) is a Hawaii corporation involved in, among other things, the purchase and development of residential and commercial real estate. This appeal concerns the tax treatment of real estate transactions involving two of Teruya’s properties, the Ocean Vista condominium complex (“Ocean Vista”), and the Royal Towers Apartment building (“Royal Towers”).

A

Teruya owned a fee simple interest in a parcel of land underlying the Ocean Vista complex in Honolulu, Hawaii. Golden Century Investments Company (“Golden”) held a long-term lease on the land, and the Association of Apartment Owners of Ocean Vista (“the Association”) held a sublease on the property.

In March 1993, the Association wrote to Teruya, inquiring about the possibility of purchasing Ocean Vista. Teruya responded that it was not interested in…