Opinion ID: 2783177
Heading Depth: 2
Heading Rank: 1

Heading: LKE Program

Text: At issue in this case is North Central's like-kind-exchange (LKE) program, which commenced less than two months after Butler Machinery formed North Central. In a nutshell, the LKE program allowed North Central to trade used equipment for new equipment and, in the process, defer tax recognition of any gains or losses from the transactions. Per the LKE program, North Central sold its used equipment to third parties, and the third parties paid the sales proceeds to a qualified intermediary, Accruit, LLC (Accruit). Accruit forwarded the sales proceeds to Butler Machinery, and the proceeds went into [Butler Machinery's] main bank account. At about the same time, Butler Machinery purchased new Caterpillar equipment for North Central and then transferred the equipment to North Central via Accruit. Butler Machinery charged North Central the same amount that Butler Machinery paid for the equipment. Butler Machinery's use of LKE transactions in this fashion facilitated favorable financing terms from Caterpillar (referred to as DRIS financing terms). Caterpillar advised Butler Machinery before it established either North Central or the LKE program that such a transaction structure would enable Butler Machinery to take full advantage of [Caterpillar's] DRIS payment terms. The DRIS payment terms, among other things, gave Butler Machinery up to six months from the date of the invoice to pay Caterpillar for North Central's new equipment. During that time, Butler Machinery could use the sales proceeds it received from Accruit for essentially whatever business purposes it wanted, such as paying bills or payroll. In other words, Butler Machinery essentially received an up-to-six-month, interest-free loan from each exchange. -3-