Bradley T. Borden (Brooklyn; Google Scholar), The IRS’s Position on Section 1031 Straddle Exchanges Is Half Wrong, 181 Tax Notes Fed. 1193 (Nov. 13, 2023):

When a section 1031 exchange straddles tax years and includes liability relief, exchangers must determine whether gain is recognized in the year of disposition of the relinquished property or in the subsequent year when the exchanger acquires replacement property or the exchange terminates. In Rev. Rul. 2003-56, the IRS took the position that the timing of the gain depends upon whether the exchanger replaces the relinquished liability.

The IRS's position is that if the exchanger replaces the relinquished liability in the subsequent year, the exchanger has no liability-relief boot in the prior year. If the exchanger does not replace the relinquished liability in the subsequent year, the exchanger has liability-relief boot in the year of the disposition. Thus, the IRS treats exchangers differently in the year of disposition based upon what happens in the subsequent year. That dissimilar treatment of similarly situated exchangers seems fundamentally wrong.

The IRS's Position on Section 1031 Straddle Exchanges is Half Wrong, at the link below, explains how general tax principles such as the open-transaction principle and annual accounting require treating an exchange that straddles tax years. The article concludes that those general principles require leaving the exchange open until the subsequent tax year and require liability-relief boot to be recognized in the subsequent year. The article shows how the IRS's position violates the fundamental tax concept of equity by treating exchangers differently even though their situations are similar at the end of the first tax year. Treating two similarly situated exchangers differently suggest that the IRS position is half wrong (or half right).