Where Is the "Swap Power" Found in the Internal Revenue Code?

There is no Internal Revenue Code section that uses the term "swap power." Instead, IRC § 675(4)(C) uses the term, "power to reacquire . . . by substituting other property . . . ." Practitioners call this power a "power of substitution," or more informally, a "swap power."

IRC § 675 Administrative powers

The grantor shall be treated as the owner of any portion of a trust in respect of which—

. . .

(4) General powers of administration. A power of administration is exercisable in a nonfiduciary capacity by any person without the approval or consent of any person in a fiduciary capacity. For purposes of this paragraph, the term “power of administration” means any one or more of the following powers: . . . (C) a power to reacquire the trust corpus by substituting other property of an equivalent value.

A power of substitution is an administrative power that allows a person (usually the grantor) to exchange assets of equivalent value with a trust. When the grantor holds this power in a nonfiduciary capacity, the trust is treated as a grantor trust.