Using your S Corp - 1031 Exchange and Self-Occupy the Property?

[Johnny Borrelli]

Hello all.  Any help with a citation if possible would be greatly appreciated.  That way I can pass off to clients. Property is located in NY. Will be exchanging for property out of state(FL). I am working with someone who is considering doing a 1031 exchange.  The property is owned by the S-Corp that they are shareholders of.  They are the only two shareholders(husband and wife).  The replacement property they would like to buy is a 2family home.  They would like to rent one unit to someone and then lease out the other unit themselves, and pay rent at fair market value back to their S- corporation.  Will the IRS see a problem with this?  And if so, why?  If not, why?  Any feedback is greatly appreciated.  Thanks.