Source: http://floridaexchange.com/Rev%20Proc%202000-37.htm
Timestamp: 2019-11-13 12:52:45
Document Index: 204280619

Matched Legal Cases: ['§1', '§1031', '§1', '§1031', '§1031', '§1031', '§1', '§1031', '§1031', '§1', '§1', '§1031', '§1031', '§1031', '§1031', '§1', '§1', '§1031']

IRS Reverse Procedures
REVERSE TAX DEFERRED EXCHANGES
QUALIFIED EXCHANGE ACCOMMODATION ARRANGEMENTS.
This revenue procedure provides a safe harbor under which the Internal Revenue Service will not challenge (a) the qualifications of property as either "replacement property" or "relinquished property" (as defined in §1.1031(k)-1(a) of the Income Tax Regulations) for purposes of §1031 of the Internal Revenue Code and the regulations thereunder or (b) the treatment of the "exchange accommodation titleholder" as the beneficial owner of such property for federal income tax purposes, if the property is held in a "qualified exchange accommodation arrangement" (QEAA), as defined in section 4.02 of this revenue procedure.
.01 Section 1031(a)(1) provides that no gain or loss is recognized on the exchange of property held for productive use in a trade or business or business or for investment if the property is exchanged solely for property of like kind that is to be held either for productive use in a trade or business or for investment.
.02 Section (a)(3) provides that property received by the taxpayer is not treated as like-kind property if it: (a) is not identified as property to be received in the exchange on or before the day that is 45 days after the date on which the taxpayer transfers the relinquished property; or (b) is received after the earlier of the date that is 180 days after the date on which the taxpayer transfers the relinquished property, or the due date (determined with regard to extension) for the transferor's federal income tax return for the year in which the transfer of the relinquished property occurs.
.03 Determining the owner of the property for federal income tax purposes requires an analysis of all of the facts and circumstances. As a general rule, the party that bears the economic burdens and benefits of ownership will be considered the owner of the property for federal income tax purposes. See Rev. Rul. 82-144, 1982-2 C.B. 34.
.04 On April 25, 1991, the Treasury Department and the Service promulgated final regulations under §1.1031(k)-1 providing rules for deferred like-kind exchanges under §1031(a)(3). The preamble to the final regulations states that the deferred exchange rules under §1031(a)(3) do not apply to reverse Starker exchanges (i.e. exchanges where the replacement property is acquired before the relinquished property is transferred) and consequently that the final regulations do not apply to such exchanges. T.D. 8346, 1991-1 C.B. 150, 151; see Starker v. United States, 602 F, 2d 1341 (9th Cir.1979). However, the preamble indicates that Treasury and the Service will continue to study the applicability of the general rule of §1031(a)(1) to these transactions. T.D. 8346, 1991-1 C.B. 150, 151.
.05 Since the promulgation of the final regulations under §1.1031(k)-1, taxpayers have engaged in a wide variety of transactions, including so-called "parking" transactions, to facilitate reverse like-kind exchanges. Parking transactions typically are designed to "park" the desired replacement property with an accommodation party until such time as the taxpayer arranges for the transfer of the relinquished property to the ultimate transferee in a simultaneous or deferred exchange. Once such a transfer is arranged, the taxpayer transfers the relinquished property in exchange for the replacement property, and the accommodation party then transfers the relinquished property to the ultimate transferee. In other situations, an accommodation party may acquire the desired replacement property on behalf of the taxpayer and immediately exchange such property with the taxpayer for the relinquished property, thereafter holding the relinquished property until the taxpayer arranges for a transfer of such property to the ultimate transferee. In the parking arrangements, taxpayers attempt to arrange the transaction so that the accommodation party has enough of the benefits and burdens relating to the property so that the accommodation party will be treated as the owner for federal income tax purposes.
.06 Treasury and the Service have determined that it is in the best interest of sound tax administration to provide taxpayers with a workable means of qualifying their transactions under §1031 in situations where the taxpayer has a genuine intent to accomplish a like-kind exchange at the time that it arranges for the acquisition of the replacement property and actually accomplishes the exchange within a short tome thereafter. Accordingly, this revenue procedure provides a safe harbor that allows a taxpayer to treat the accommodation party as the owner of the property for federal income tax purposes, thereby enabling the taxpayer to accomplish to accomplish a qualifying like-kind exchange.
.01 Exclusivity. This revenue procedure provides a safe harbor for the qualification under §1031 of certain arrangements between taxpayers and exchange accommodation titleholders and provides for the treatment of the exchange accommodation titleholder as the beneficial owner of the property for federal tax purposes. These provisions apply only in the limited context described in this revenue procedure. The principles set forth in this revenue procedure have no application to any federal income tax determinations other than determinations that involve arrangements qualifying for the safe harbor.
.03 Other issues. Services for the taxpayer in connection with a person's role as the exchange accommodation titleholder in a QEAA shall not be taken into account in determining whether that person or a related person is a disqualified person (as defined in §1. 1031(k)-1(k). Even though property will not fail to be treated as being held in a QEAA as a result of one or more arrangements described in section 4.03 of this revenue procedure, the Service still may recast an amount paid pursuant to such an arrangement as a fee paid to the exchange accommodation titleholder for acting as an exchange accommodation titleholder to the extent necessary to reflect the true economic substance of the arrangement. Other federal income tax issues implicated, but not addressed, in this revenue procedure include the treatment, for federal income tax purposes, of payments described in section 4.03(7) and whether an exchange accommodation titleholder may be precluded from claiming depreciation deductions (e.g. as a dealer) with respect to the relinquished property or the replacement property.
.01 Generally. The Service will not challenge the qualification of the property as either "replacement property" or "relinquished property" (as defined in §1.1031(k)-1(a) for purposes of §1031 and the regulations thereunder, or the treatment of the exchange accommodation titleholder as the beneficial owner of such property for federal income tax purposes, if the property is held in a QEAA.
(1) Qualified indicia of ownership of the property is held by a person (the "exchange accommodation title holder") who is not the taxpayer or a disqualified person and either such person is subject to federal income tax or, if such person is treated as a partnership or S corporation for federal income tax purposes, more than 90 percent of its interests or stock are owned by partners or shareholders who are subject to federal income tax. Such qualified indicia of ownership must be held by the exchange accommodation titleholder at all times from the date of acquisition by the exchange accommodation titleholder until the property is transferred as described in section 4.02(5) of this revenue procedure. For this purpose, "qualified indicia of ownership" means legal title to the property, other indicia of ownership of the property that are treated as beneficial ownership of the property under applicable principles of commercial law (e.g. a contract for deed), or interests in an entity that is disregarded as an entity separate from its owner for federal income tax purposes (e.g., a single member limited liability company) and that holds either legal title to the property or such other indicia of ownership;
(2) At the time the qualified indicia of the property is transferred to the exchange accommodation titleholder, it is the taxpayer's bona fide intent that the property by the exchange accommodation titleholder represent either replacement property or relinquished property in an exchange that is intended to qualify for non recognition of gain (in whole or in part) or loss under §1031;
(3) No later than five business days after the transfer of qualified indicia of ownership of the property to the exchange accommodation titleholder, the taxpayer and the exchange accommodation titleholder enter a written agreement (the "qualified exchange accommodation agreement") that provides that the exchange accommodation titleholder is holding the property for the benefit of the taxpayer in order to facilitate an exchange under §1031 and this revenue procedure and that the taxpayer and the exchange accommodation titleholder agree to report the acquisition, holding, and disposition of the property as provided in this revenue procedure. The agreement must specify that the exchange accommodation titleholder will be treated as the beneficial owner of the property for all federal income tax purposes. Both parties must report the federal income tax attributes of the property on their federal income tax returns in a manner consistent with this agreement;
(4) No later than 45 days after the transfer of qualified indicia of ownership of the replacement property to the exchange accommodation titleholder, the relinquished property is properly identified. Identification must be made in a manner consistent with the principles described in §1031(k)--1(c). For purposes of this section, the taxpayer may properly identify alternative and multiple properties, as described in §1.1031(k)-1(c)(4);
(5) No later than 180 days after the transfer of qualified indicia of ownership of the property to the exchange accommodation titleholder, (a) the property is transferred (either directly or indirectly through a qualified intermediary (as defined in º1.103(k)-1(g)(4)) to the taxpayer as replacement property; or (b) the property is transferred to a person who is not the taxpayer or a disqualified person, as relinquished property; and
(6) The combined time period that the relinquished property and the replacement and the replacement property are held in a QEAA does not exceed 180 days.
.03 Permissible Agreements. Property will not fail to be treated as being held in a QEAA as a result of any one or more of the following legal or contractual arrangements, regardless of whether such arrangements contain terms that typically would result from arm's length bargaining between unrelated parties with respect to such arrangements.
(1) An exchange accommodation titleholder that satisfies the requirements of the qualified intermediary safe harbor set forth in §1.1031(k)-1(g)(4) may enter into an exchange agreement with the taxpayer to serve as the qualified intermediary in a simultaneous or deferred exchange of the property under §1031;
This revenue procedure is effective for QEAA's entered into with respect to an exchange accommodation titleholder that acquires qualified indicia of ownership of property on or after September 15, 2000.
The principal author of this revenue procedure is J. Peter Baumgarten of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Mr. Baumgarten on (202) 622-4950 (not a toll-free call).
26 CFR 1.1031(a)-1: Property held for productive use in trade or business or for investment 1.1031(k)-1: Treatment of deferred exchanges.