Category: 1031 Exchange General

What are safe harbors and why are they needed?
The 1991 tax deferred exchange regulations provided for various “safe harbors” to allow certain specific actions set forth in the regulations to be utilized by parties without otherwise running afoul of the rules. Without the safe harbors, these actions would disqualify an exchange. These safe harbors were put into the regulations as solutions for problems in the mechanics of an exchange prior to the 1991 regulations and in order to make a delayed exchange easier to accomplish. Some of these safe harbors have come to be used in almost every single transaction, while others are seldom used. Let’s take a more detailed look at these safe harbors:

Security or Guaranty Arrangements
Qualified Escrow and Qualified Trust Accounts
Use of Qualified Intermediaries
Interest and Growth Factors

The Security or Guaranty Arrangement Safe Harbor
The vast majority of exchanges are done on a delayed basis. In other words, the relinquished property is sold on a certain day, and the replacement property is acquired up to 180 days later. A taxpayer is not allowed to exercise any actual receipt or constructive receipt of the exchange funds paid by the buyer at the time of the sale. If the taxpayer did have any control, then the transaction would be deemed to be a sale followed by an unrelated purchase, but not an exchange of one for the other. The idea here is that the buyer does not pay the seller/taxpayer, rather the buyer is promising to later come up with the funds to be applied to the taxpayer’s purchase of the replacement property.
So the safe harbor that was meant to deal with this problem allows a taxpayer to secure the buyer’s obligation to acquire and transfer the replacement property at the time the taxpayer has picked it out and is ready to receive it. More specifically, the taxpayer is allowed to receive security for that contractual obligation in the form of a mortgage/deed of trust or a standby letter of credit in favor of the taxpayer. The regulations further allow for the buyer’s legal promise to be secured by a guarantee of a third party. In the event a mortgage/deed of trust is utilized, the secured property can be the taxpayer’s relinquished property that is being sold to the buyer or an unrelated property that is owned by the buyer.
The Qualified Escrow and Qualified Trust Account
Ensuring that a taxpayer is not in actual or constructive receipt of sale proceeds while also making sure that funds will be readily available when needed can be a delicate dance. The second safe harbor provides a way to ensure availability of funds while not putting the taxpayer in any sort of receipt of them. The difference between this approach and that of the first safe harbor is that, in this case, the buyer is out of the picture as soon as the closing on the relinquished property sale is finished.
The use of an escrow or a trust for this purpose is very similar. Both disallow an escrowee or a trustee if that party is an agent of the taxpayer or is a related party to the taxpayer. Further, the escrow or trust agreement must affirmatively state that it “expressly limits a taxpayer’s rights to receive, pledge, borrow, or otherwise obtain the benefits of the cash… held by” the party holding it. The party acting as the escrowee or trustee can be the same or a related entity acting as the qualified intermediary (QI) for the transaction. For instance, a bank may be acting as qualified intermediary but hold the funds in a trust capacity in the bank’s trust department.
This safe harbor offers benefits additional to making the buyer’s involvement in the taxpayer’s transaction unnecessary after the initial closing.  To avoid constructive receipt by the taxpayer, the funds are held away from the buyer but not deemed received by the taxpayer. Further, an unscrupulous qualified intermediary could not unilaterally withdraw the funds without the acquiescence of the taxpayer. This can be achieved with or without an escrow or trust if the QI has dual controls in place internally when transferring money out of an account.  This should not be a concern when due diligence allows for choosing a well-regarded qualified intermediary.  There have been past instances in which a qualified intermediary failed to clearly segregate individuals’ exchange proceeds  In the unlikely event of a bankruptcy of the QI, holding the funds in an escrow or trust is one way to make the clear case that they belong to the exchanger and are not subject to creditor claims against the QI.  Another way to accomplish this important degree of separation is by clearly holding each clients’ funds in separately-marked accounts for the benefit of the clients.
The Qualified Intermediary Safe Harbor
The Qualified Intermediary Safe Harbor is the most important safe harbor, constituting the most significant portion of the 1991 treasury regulations. At the inception of IRC §1031 in 1921, an exchange was expected to be a two-party, simultaneous exchange of like-kind property. So A and B exchanged with one another, and if either one need to kick in some cash to equalize value, then only the receipt of the cash was subject to tax. The thinking at the time was to allow the deferral of tax on a transaction in which the taxpayer started with one property and ended with a like-kind property.
Over time, permutations for conducting an exchange crept in. Eventually, it became possible for A to sell to B and then acquire replacement property up to 180 days later from C. While the logic seemed clear in the original example of A and B simultaneously trading like-kind property, it was difficult to envision applying this to a three-party transaction that allowed up to 180 days for completion.
The Treasury Department came up with the idea of a qualified intermediary providing logical underpinnings to such a delayed exchange between a taxpayer, a buyer, and a third party seller. It is worth noting that “qualified intermediary” can really just be thought of as “intermediary.” Certain individuals or businesses are disqualified from acting as intermediary (such as family member, agent, accountant etc.) so anyone not disqualified is, in fact, qualified. So by inserting an intermediary into the mix when selling to one party and buying from another, the taxpayer is deemed to have completed an exchange with the intermediary rather than with the buyer and/or seller.
The taxpayer transfers certain rights in the sale contract to the QI who, for tax purposes, transfers the old property to the buyer. Later, the taxpayer transfers certain rights in the purchase contract to the QI, who for tax purposes, acquires the new property and transfers it to the taxpayer.
The Interest and Growth Factor Safe Harbor
Prior to the issuance of the 1991 Treasury Regulations, the accrual of interest on exchange funds deposited into a bank account was a vexing problem. The legal fiction taking place was for the taxpayer to sell to a buyer and for the buyer’s funds to be held back for up to 180 days before being applied toward the purchase of the taxpayer’s replacement property. If interest was accrued for the benefit of the seller, then the funds must have belonged to the taxpayer all along. This conundrum resulted in some special measures that take place when negotiating the sale contract with the buyer. One option was to let the buyer receive the interest on the funds put into the escrow by the buyer. This often resulted in a windfall for a buyer in an exchange. Another option was to let the buyer receive the interest, but require the buyer turn it over to the taxpayer after the exchange was completed. Last, the parties might try and anticipate how much interest was expected to be received by the buyer and then “goose up” the contract sale price by an equal amount.
Since these measures were so unwieldy, the Treasury Department decided to clean this up by providing a safe harbor for the taxpayer’s receipt of interest or some other type of yield (growth factor) on the deposit. The safe harbor essentially states that even though the accrual and payment of interest on the funds is inconsistent with the fact that they are not considered the taxpayer’s funds while on deposit, it was still permissible to allow the taxpayer to receive the benefit of interest on the funds. The interest is reportable as income whether the taxpayer includes those funds with the balance of the purchase price for replacement property, or simply receives a check for the interest upon closing of the transaction.
Summary
Purchases of real estate are often among the biggest financial decisions a person makes during his or her lifetime. It would be foolhardy to make such an investment without title insurance. Likewise, selling a property and buying a new one as part of a like-kind exchange is a significant investment. The IRS offers taxpayers some “exchange insurance” via the safe harbors. Although the regulations state that an exchange does not necessarily need to adhere to the safe harbors to be valid, by staying within the safe harbors the IRS is providing to the taxpayer the assurance that the transaction will not be challenged in any way regarding these aspects.

What are safe harbors and why are they needed?
The 1991 tax deferred exchange regulations provided for various “safe harbors” to allow certain specific actions set forth in the regulations to be utilized by parties without otherwise running afoul of the rules. Without the safe harbors, these actions would disqualify an exchange. These safe harbors were put into the regulations as solutions for problems in the mechanics of an exchange prior to the 1991 regulations and in order to make a delayed exchange easier to accomplish. Some of these safe harbors have come to be used in almost every single transaction, while others are seldom used. Let’s take a more detailed look at these safe harbors:

Security or Guaranty Arrangements
Qualified Escrow and Qualified Trust Accounts
Use of Qualified Intermediaries
Interest and Growth Factors

The Security or Guaranty Arrangement Safe Harbor
The vast majority of exchanges are done on a delayed basis. In other words, the relinquished property is sold on a certain day, and the replacement property is acquired up to 180 days later. A taxpayer is not allowed to exercise any actual receipt or constructive receipt of the exchange funds paid by the buyer at the time of the sale. If the taxpayer did have any control, then the transaction would be deemed to be a sale followed by an unrelated purchase, but not an exchange of one for the other. The idea here is that the buyer does not pay the seller/taxpayer, rather the buyer is promising to later come up with the funds to be applied to the taxpayer’s purchase of the replacement property.
So the safe harbor that was meant to deal with this problem allows a taxpayer to secure the buyer’s obligation to acquire and transfer the replacement property at the time the taxpayer has picked it out and is ready to receive it. More specifically, the taxpayer is allowed to receive security for that contractual obligation in the form of a mortgage/deed of trust or a standby letter of credit in favor of the taxpayer. The regulations further allow for the buyer’s legal promise to be secured by a guarantee of a third party. In the event a mortgage/deed of trust is utilized, the secured property can be the taxpayer’s relinquished property that is being sold to the buyer or an unrelated property that is owned by the buyer.
The Qualified Escrow and Qualified Trust Account
Ensuring that a taxpayer is not in actual or constructive receipt of sale proceeds while also making sure that funds will be readily available when needed can be a delicate dance. The second safe harbor provides a way to ensure availability of funds while not putting the taxpayer in any sort of receipt of them. The difference between this approach and that of the first safe harbor is that, in this case, the buyer is out of the picture as soon as the closing on the relinquished property sale is finished.
The use of an escrow or a trust for this purpose is very similar. Both disallow an escrowee or a trustee if that party is an agent of the taxpayer or is a related party to the taxpayer. Further, the escrow or trust agreement must affirmatively state that it “expressly limits a taxpayer’s rights to receive, pledge, borrow, or otherwise obtain the benefits of the cash… held by” the party holding it. The party acting as the escrowee or trustee can be the same or a related entity acting as the qualified intermediary (QI) for the transaction. For instance, a bank may be acting as qualified intermediary but hold the funds in a trust capacity in the bank’s trust department.
This safe harbor offers benefits additional to making the buyer’s involvement in the taxpayer’s transaction unnecessary after the initial closing.  To avoid constructive receipt by the taxpayer, the funds are held away from the buyer but not deemed received by the taxpayer. Further, an unscrupulous qualified intermediary could not unilaterally withdraw the funds without the acquiescence of the taxpayer. This can be achieved with or without an escrow or trust if the QI has dual controls in place internally when transferring money out of an account.  This should not be a concern when due diligence allows for choosing a well-regarded qualified intermediary.  There have been past instances in which a qualified intermediary failed to clearly segregate individuals’ exchange proceeds  In the unlikely event of a bankruptcy of the QI, holding the funds in an escrow or trust is one way to make the clear case that they belong to the exchanger and are not subject to creditor claims against the QI.  Another way to accomplish this important degree of separation is by clearly holding each clients’ funds in separately-marked accounts for the benefit of the clients.
The Qualified Intermediary Safe Harbor
The Qualified Intermediary Safe Harbor is the most important safe harbor, constituting the most significant portion of the 1991 treasury regulations. At the inception of IRC §1031 in 1921, an exchange was expected to be a two-party, simultaneous exchange of like-kind property. So A and B exchanged with one another, and if either one need to kick in some cash to equalize value, then only the receipt of the cash was subject to tax. The thinking at the time was to allow the deferral of tax on a transaction in which the taxpayer started with one property and ended with a like-kind property.
Over time, permutations for conducting an exchange crept in. Eventually, it became possible for A to sell to B and then acquire replacement property up to 180 days later from C. While the logic seemed clear in the original example of A and B simultaneously trading like-kind property, it was difficult to envision applying this to a three-party transaction that allowed up to 180 days for completion.
The Treasury Department came up with the idea of a qualified intermediary providing logical underpinnings to such a delayed exchange between a taxpayer, a buyer, and a third party seller. It is worth noting that “qualified intermediary” can really just be thought of as “intermediary.” Certain individuals or businesses are disqualified from acting as intermediary (such as family member, agent, accountant etc.) so anyone not disqualified is, in fact, qualified. So by inserting an intermediary into the mix when selling to one party and buying from another, the taxpayer is deemed to have completed an exchange with the intermediary rather than with the buyer and/or seller.
The taxpayer transfers certain rights in the sale contract to the QI who, for tax purposes, transfers the old property to the buyer. Later, the taxpayer transfers certain rights in the purchase contract to the QI, who for tax purposes, acquires the new property and transfers it to the taxpayer.
The Interest and Growth Factor Safe Harbor
Prior to the issuance of the 1991 Treasury Regulations, the accrual of interest on exchange funds deposited into a bank account was a vexing problem. The legal fiction taking place was for the taxpayer to sell to a buyer and for the buyer’s funds to be held back for up to 180 days before being applied toward the purchase of the taxpayer’s replacement property. If interest was accrued for the benefit of the seller, then the funds must have belonged to the taxpayer all along. This conundrum resulted in some special measures that take place when negotiating the sale contract with the buyer. One option was to let the buyer receive the interest on the funds put into the escrow by the buyer. This often resulted in a windfall for a buyer in an exchange. Another option was to let the buyer receive the interest, but require the buyer turn it over to the taxpayer after the exchange was completed. Last, the parties might try and anticipate how much interest was expected to be received by the buyer and then “goose up” the contract sale price by an equal amount.
Since these measures were so unwieldy, the Treasury Department decided to clean this up by providing a safe harbor for the taxpayer’s receipt of interest or some other type of yield (growth factor) on the deposit. The safe harbor essentially states that even though the accrual and payment of interest on the funds is inconsistent with the fact that they are not considered the taxpayer’s funds while on deposit, it was still permissible to allow the taxpayer to receive the benefit of interest on the funds. The interest is reportable as income whether the taxpayer includes those funds with the balance of the purchase price for replacement property, or simply receives a check for the interest upon closing of the transaction.
Summary
Purchases of real estate are often among the biggest financial decisions a person makes during his or her lifetime. It would be foolhardy to make such an investment without title insurance. Likewise, selling a property and buying a new one as part of a like-kind exchange is a significant investment. The IRS offers taxpayers some “exchange insurance” via the safe harbors. Although the regulations state that an exchange does not necessarily need to adhere to the safe harbors to be valid, by staying within the safe harbors the IRS is providing to the taxpayer the assurance that the transaction will not be challenged in any way regarding these aspects.

What are safe harbors and why are they needed?
The 1991 tax deferred exchange regulations provided for various “safe harbors” to allow certain specific actions set forth in the regulations to be utilized by parties without otherwise running afoul of the rules. Without the safe harbors, these actions would disqualify an exchange. These safe harbors were put into the regulations as solutions for problems in the mechanics of an exchange prior to the 1991 regulations and in order to make a delayed exchange easier to accomplish. Some of these safe harbors have come to be used in almost every single transaction, while others are seldom used. Let’s take a more detailed look at these safe harbors:

Security or Guaranty Arrangements
Qualified Escrow and Qualified Trust Accounts
Use of Qualified Intermediaries
Interest and Growth Factors

The Security or Guaranty Arrangement Safe Harbor
The vast majority of exchanges are done on a delayed basis. In other words, the relinquished property is sold on a certain day, and the replacement property is acquired up to 180 days later. A taxpayer is not allowed to exercise any actual receipt or constructive receipt of the exchange funds paid by the buyer at the time of the sale. If the taxpayer did have any control, then the transaction would be deemed to be a sale followed by an unrelated purchase, but not an exchange of one for the other. The idea here is that the buyer does not pay the seller/taxpayer, rather the buyer is promising to later come up with the funds to be applied to the taxpayer’s purchase of the replacement property.
So the safe harbor that was meant to deal with this problem allows a taxpayer to secure the buyer’s obligation to acquire and transfer the replacement property at the time the taxpayer has picked it out and is ready to receive it. More specifically, the taxpayer is allowed to receive security for that contractual obligation in the form of a mortgage/deed of trust or a standby letter of credit in favor of the taxpayer. The regulations further allow for the buyer’s legal promise to be secured by a guarantee of a third party. In the event a mortgage/deed of trust is utilized, the secured property can be the taxpayer’s relinquished property that is being sold to the buyer or an unrelated property that is owned by the buyer.
The Qualified Escrow and Qualified Trust Account
Ensuring that a taxpayer is not in actual or constructive receipt of sale proceeds while also making sure that funds will be readily available when needed can be a delicate dance. The second safe harbor provides a way to ensure availability of funds while not putting the taxpayer in any sort of receipt of them. The difference between this approach and that of the first safe harbor is that, in this case, the buyer is out of the picture as soon as the closing on the relinquished property sale is finished.
The use of an escrow or a trust for this purpose is very similar. Both disallow an escrowee or a trustee if that party is an agent of the taxpayer or is a related party to the taxpayer. Further, the escrow or trust agreement must affirmatively state that it “expressly limits a taxpayer’s rights to receive, pledge, borrow, or otherwise obtain the benefits of the cash… held by” the party holding it. The party acting as the escrowee or trustee can be the same or a related entity acting as the qualified intermediary (QI) for the transaction. For instance, a bank may be acting as qualified intermediary but hold the funds in a trust capacity in the bank’s trust department.
This safe harbor offers benefits additional to making the buyer’s involvement in the taxpayer’s transaction unnecessary after the initial closing.  To avoid constructive receipt by the taxpayer, the funds are held away from the buyer but not deemed received by the taxpayer. Further, an unscrupulous qualified intermediary could not unilaterally withdraw the funds without the acquiescence of the taxpayer. This can be achieved with or without an escrow or trust if the QI has dual controls in place internally when transferring money out of an account.  This should not be a concern when due diligence allows for choosing a well-regarded qualified intermediary.  There have been past instances in which a qualified intermediary failed to clearly segregate individuals’ exchange proceeds  In the unlikely event of a bankruptcy of the QI, holding the funds in an escrow or trust is one way to make the clear case that they belong to the exchanger and are not subject to creditor claims against the QI.  Another way to accomplish this important degree of separation is by clearly holding each clients’ funds in separately-marked accounts for the benefit of the clients.
The Qualified Intermediary Safe Harbor
The Qualified Intermediary Safe Harbor is the most important safe harbor, constituting the most significant portion of the 1991 treasury regulations. At the inception of IRC §1031 in 1921, an exchange was expected to be a two-party, simultaneous exchange of like-kind property. So A and B exchanged with one another, and if either one need to kick in some cash to equalize value, then only the receipt of the cash was subject to tax. The thinking at the time was to allow the deferral of tax on a transaction in which the taxpayer started with one property and ended with a like-kind property.
Over time, permutations for conducting an exchange crept in. Eventually, it became possible for A to sell to B and then acquire replacement property up to 180 days later from C. While the logic seemed clear in the original example of A and B simultaneously trading like-kind property, it was difficult to envision applying this to a three-party transaction that allowed up to 180 days for completion.
The Treasury Department came up with the idea of a qualified intermediary providing logical underpinnings to such a delayed exchange between a taxpayer, a buyer, and a third party seller. It is worth noting that “qualified intermediary” can really just be thought of as “intermediary.” Certain individuals or businesses are disqualified from acting as intermediary (such as family member, agent, accountant etc.) so anyone not disqualified is, in fact, qualified. So by inserting an intermediary into the mix when selling to one party and buying from another, the taxpayer is deemed to have completed an exchange with the intermediary rather than with the buyer and/or seller.
The taxpayer transfers certain rights in the sale contract to the QI who, for tax purposes, transfers the old property to the buyer. Later, the taxpayer transfers certain rights in the purchase contract to the QI, who for tax purposes, acquires the new property and transfers it to the taxpayer.
The Interest and Growth Factor Safe Harbor
Prior to the issuance of the 1991 Treasury Regulations, the accrual of interest on exchange funds deposited into a bank account was a vexing problem. The legal fiction taking place was for the taxpayer to sell to a buyer and for the buyer’s funds to be held back for up to 180 days before being applied toward the purchase of the taxpayer’s replacement property. If interest was accrued for the benefit of the seller, then the funds must have belonged to the taxpayer all along. This conundrum resulted in some special measures that take place when negotiating the sale contract with the buyer. One option was to let the buyer receive the interest on the funds put into the escrow by the buyer. This often resulted in a windfall for a buyer in an exchange. Another option was to let the buyer receive the interest, but require the buyer turn it over to the taxpayer after the exchange was completed. Last, the parties might try and anticipate how much interest was expected to be received by the buyer and then “goose up” the contract sale price by an equal amount.
Since these measures were so unwieldy, the Treasury Department decided to clean this up by providing a safe harbor for the taxpayer’s receipt of interest or some other type of yield (growth factor) on the deposit. The safe harbor essentially states that even though the accrual and payment of interest on the funds is inconsistent with the fact that they are not considered the taxpayer’s funds while on deposit, it was still permissible to allow the taxpayer to receive the benefit of interest on the funds. The interest is reportable as income whether the taxpayer includes those funds with the balance of the purchase price for replacement property, or simply receives a check for the interest upon closing of the transaction.
Summary
Purchases of real estate are often among the biggest financial decisions a person makes during his or her lifetime. It would be foolhardy to make such an investment without title insurance. Likewise, selling a property and buying a new one as part of a like-kind exchange is a significant investment. The IRS offers taxpayers some “exchange insurance” via the safe harbors. Although the regulations state that an exchange does not necessarily need to adhere to the safe harbors to be valid, by staying within the safe harbors the IRS is providing to the taxpayer the assurance that the transaction will not be challenged in any way regarding these aspects.

Background on Reverse Tax Deferred Exchanges
Modern day tax deferred exchanges began in the early 1980s with a court ruling (the Starker case) that an exchange for relinquished property and the purchase of corresponding replacement property did not need to take place simultaneously to be valid.  The Tax Reform Act of 1984 contained a legislative response to the holding in the Starker case.  While the Starker case involved a five-year period between sale and purchase, Congress reduced this to a maximum of 180 days from sale to purchase.
There was still a lot of uncertainty at the time on how to do a non-simultaneous exchange, and near the end of 1991, the Treasury Department put forth a detailed body of regulations providing a roadmap for non-simultaneous exchanges. While this guide to a delayed exchange was very welcome, the Treasury Department chose not to include guidance on property “parking” transactions.  Property parking transactions include reverse exchanges in which a taxpayer needs to buy the replacement property prior to the sale of the relinquished property and property improvement exchanges in which a replacement property requires improvements to be paid out of relinquished property sale proceeds. To accomplish these transactions, the exchange company had to take legal title to the property and so it was often said that the property was “parked” with the exchange company.
In 2000, the Treasury Department and IRS published a revenue procedure providing guidance on parking type exchanges. Similar to the time limit of 180 days for a routine exchange, the time limit of 180 days was also allowed for a parking transaction.  As long as a taxpayer followed the rules and wrapped up the parking transaction within 180 days, he was deemed to fall within the safe harbor of properly doing a parking transaction.  Unlike a conventional exchange, in which the exchange company acts as a qualified intermediary, in a parking exchange the company is acting as an accommodator.  Under the safe harbor for parking exchanges, the following are permitted:

The taxpayer can guaranty any loan that is required from a bank to the accommodator for the purchase of the property or for the cost of improvements.
The taxpayer may lend money directly to the accommodator.
The taxpayer can lease the property from the accommodator.
The taxpayer can manage the improvement of the property.
The taxpayer and accommodator can enter into puts, calls and fixed prices.
The ability to readjust monies to account for deviation from the amount the accommodator might use to “buy” the taxpayer’s relinquished property compared to the amount for which that property later sells
For IRS purposes. the accommodator can be made the express agent of the taxpayer (actually this became permitted by PLR 200148042).

Unfortunately, the revenue procedure did not address how to accomplish a parking transaction that required a longer time period than 180 days.  These are generally referred to as non-safe harbor exchanges. It was widely believed that a transaction outside the safe harbor needed to include the following:

The accommodator had to hold the “benefits and burdens” of the property ownership.
The transfer of the property to or from the accommodator had to be at true market value.
The accommodator had to have some “skin in the game,” meaning it had to put some of its own money into the property.
The transaction had to have “risk of loss” if the loan went bad.
Any lease of the property from the accommodator to the taxpayer had to have real economics.
Any of the arrangements between the parties had to be at arm’s length.
Any characterization of agency between the accommodator and taxpayer would be fatal.

As a consequence of these stringent requirements non-safe harbor parking exchanges were exceedingly rare.  Those persons whose day-to-day work included a heavy mix of 1031 exchanges and parking exchanges eagerly awaited a decision. A particular Tax Court case was pending for ten years involving a non-safe harbor property improvement situation.  On August 10, 2016 the United States Tax Court filed its opinion in the Bartell case.
The Bartell Case and What it Means for Reverse Exchanges
Somewhat surprising to the 1031 exchange community, the Tax Court holding in the Bartell case was very taxpayer-favorable.  Among other things the Court noted that:

The taxpayer had all of the benefits and burdens of ownership.
The taxpayer had the benefit of any appreciation in the property while parked.
The taxpayer had the risk of loss of any decline in value of the property.
The taxpayer lent funds to the parking entity .
The taxpayer had the other burdens of ownership such as taxes and other liabilities.
The taxpayer financed and directed construction of improvements.
The taxpayer had actual possession of the property via a lease.

The Court went on to state that other cases at the Tax Court had concluded that the third party (the accommodator) did not have to have the burdens and benefits of property ownership.  The Court went on to say that if its decision was appealed, it would be heard by the Ninth Circuit Court of Appeals and it too had held that burdens and benefits of ownership were not necessary in this context.  The Tax Court also placed substantial emphasis on the fact that in all of the prior favorable rulings, as well as the case in hand, a third party exchange facilitator (the accommodator) held ownership of the property during the transaction. 
This was distinguished from another opposite holding by the Court in a case known as DeCleene v. Commissioner in which the taxpayer had owned the subject property at a prior time and did not use a third party facilitator to hold title.  The court stated, “This feature also distinguishes DeCleene from the myriad of other cases where taxpayers seeking 1031 treatment were careful to interpose a title-holding intermediary between themselves and outright ownership of the replacement property.” Likewise the Court was not bothered by the fact that Bartell had rights of possession of the property pursuant to a lease or that the parking agreement was up to twenty four months.
Takeaways from the Bartell Decision
It appears that a third party accommodator can merely be a placeholder (or a “warehousing” entity as referenced in the case) and that it does not need to receive the burdens and benefits of true ownership. There can also be non-arm’s length agreements between the taxpayer and accommodator.  Utilizing a third party to hold title is a key factor in the decision, so structures that do not use a third party accommodator are ill-advised. 
The amount of time a parking transaction can be in place is open ended.  The Bartell case had an actual parking period of 17 months and the agreements between the parties had a 24-month term.  With regard to the time issue, the Court stated “We express no opinion with respect to the applicability of section 1031 that extends beyond the period at issue in these cases.”  So a term greater than 24 months may be acceptable but cautious practitioners may want to limit transactions to the time limit in Bartell.  As mentioned above, Congress enacted the 180-day limit to forward exchanges to limit the five-year term that was allowed in the Starker case and Congress may very well enact legislation to codify a non-safe harbor parking limit.
While this ruling has precedential value, it is possible that another Tax Court in a different circuit could choose not to follow the rationale set forth in the case.  Similarly, another court might not reach the same conclusion as the Ninth Circuit did in the “myriad of cases” that the Tax Court relied upon.  Lastly, the facts in this case preceded the Safe Harbor regulations that were promulgated in 2000, and a court may require a taxpayer to adhere to those time limits in order to qualify for a valid parking arrangement.

Background on Reverse Tax Deferred Exchanges
Modern day tax deferred exchanges began in the early 1980s with a court ruling (the Starker case) that an exchange for relinquished property and the purchase of corresponding replacement property did not need to take place simultaneously to be valid.  The Tax Reform Act of 1984 contained a legislative response to the holding in the Starker case.  While the Starker case involved a five-year period between sale and purchase, Congress reduced this to a maximum of 180 days from sale to purchase.
There was still a lot of uncertainty at the time on how to do a non-simultaneous exchange, and near the end of 1991, the Treasury Department put forth a detailed body of regulations providing a roadmap for non-simultaneous exchanges. While this guide to a delayed exchange was very welcome, the Treasury Department chose not to include guidance on property “parking” transactions.  Property parking transactions include reverse exchanges in which a taxpayer needs to buy the replacement property prior to the sale of the relinquished property and property improvement exchanges in which a replacement property requires improvements to be paid out of relinquished property sale proceeds. To accomplish these transactions, the exchange company had to take legal title to the property and so it was often said that the property was “parked” with the exchange company.
In 2000, the Treasury Department and IRS published a revenue procedure providing guidance on parking type exchanges. Similar to the time limit of 180 days for a routine exchange, the time limit of 180 days was also allowed for a parking transaction.  As long as a taxpayer followed the rules and wrapped up the parking transaction within 180 days, he was deemed to fall within the safe harbor of properly doing a parking transaction.  Unlike a conventional exchange, in which the exchange company acts as a qualified intermediary, in a parking exchange the company is acting as an accommodator.  Under the safe harbor for parking exchanges, the following are permitted:

The taxpayer can guaranty any loan that is required from a bank to the accommodator for the purchase of the property or for the cost of improvements.
The taxpayer may lend money directly to the accommodator.
The taxpayer can lease the property from the accommodator.
The taxpayer can manage the improvement of the property.
The taxpayer and accommodator can enter into puts, calls and fixed prices.
The ability to readjust monies to account for deviation from the amount the accommodator might use to “buy” the taxpayer’s relinquished property compared to the amount for which that property later sells
For IRS purposes. the accommodator can be made the express agent of the taxpayer (actually this became permitted by PLR 200148042).

Unfortunately, the revenue procedure did not address how to accomplish a parking transaction that required a longer time period than 180 days.  These are generally referred to as non-safe harbor exchanges. It was widely believed that a transaction outside the safe harbor needed to include the following:

The accommodator had to hold the “benefits and burdens” of the property ownership.
The transfer of the property to or from the accommodator had to be at true market value.
The accommodator had to have some “skin in the game,” meaning it had to put some of its own money into the property.
The transaction had to have “risk of loss” if the loan went bad.
Any lease of the property from the accommodator to the taxpayer had to have real economics.
Any of the arrangements between the parties had to be at arm’s length.
Any characterization of agency between the accommodator and taxpayer would be fatal.

As a consequence of these stringent requirements non-safe harbor parking exchanges were exceedingly rare.  Those persons whose day-to-day work included a heavy mix of 1031 exchanges and parking exchanges eagerly awaited a decision. A particular Tax Court case was pending for ten years involving a non-safe harbor property improvement situation.  On August 10, 2016 the United States Tax Court filed its opinion in the Bartell case.
The Bartell Case and What it Means for Reverse Exchanges
Somewhat surprising to the 1031 exchange community, the Tax Court holding in the Bartell case was very taxpayer-favorable.  Among other things the Court noted that:

The taxpayer had all of the benefits and burdens of ownership.
The taxpayer had the benefit of any appreciation in the property while parked.
The taxpayer had the risk of loss of any decline in value of the property.
The taxpayer lent funds to the parking entity .
The taxpayer had the other burdens of ownership such as taxes and other liabilities.
The taxpayer financed and directed construction of improvements.
The taxpayer had actual possession of the property via a lease.

The Court went on to state that other cases at the Tax Court had concluded that the third party (the accommodator) did not have to have the burdens and benefits of property ownership.  The Court went on to say that if its decision was appealed, it would be heard by the Ninth Circuit Court of Appeals and it too had held that burdens and benefits of ownership were not necessary in this context.  The Tax Court also placed substantial emphasis on the fact that in all of the prior favorable rulings, as well as the case in hand, a third party exchange facilitator (the accommodator) held ownership of the property during the transaction. 
This was distinguished from another opposite holding by the Court in a case known as DeCleene v. Commissioner in which the taxpayer had owned the subject property at a prior time and did not use a third party facilitator to hold title.  The court stated, “This feature also distinguishes DeCleene from the myriad of other cases where taxpayers seeking 1031 treatment were careful to interpose a title-holding intermediary between themselves and outright ownership of the replacement property.” Likewise the Court was not bothered by the fact that Bartell had rights of possession of the property pursuant to a lease or that the parking agreement was up to twenty four months.
Takeaways from the Bartell Decision
It appears that a third party accommodator can merely be a placeholder (or a “warehousing” entity as referenced in the case) and that it does not need to receive the burdens and benefits of true ownership. There can also be non-arm’s length agreements between the taxpayer and accommodator.  Utilizing a third party to hold title is a key factor in the decision, so structures that do not use a third party accommodator are ill-advised. 
The amount of time a parking transaction can be in place is open ended.  The Bartell case had an actual parking period of 17 months and the agreements between the parties had a 24-month term.  With regard to the time issue, the Court stated “We express no opinion with respect to the applicability of section 1031 that extends beyond the period at issue in these cases.”  So a term greater than 24 months may be acceptable but cautious practitioners may want to limit transactions to the time limit in Bartell.  As mentioned above, Congress enacted the 180-day limit to forward exchanges to limit the five-year term that was allowed in the Starker case and Congress may very well enact legislation to codify a non-safe harbor parking limit.
While this ruling has precedential value, it is possible that another Tax Court in a different circuit could choose not to follow the rationale set forth in the case.  Similarly, another court might not reach the same conclusion as the Ninth Circuit did in the “myriad of cases” that the Tax Court relied upon.  Lastly, the facts in this case preceded the Safe Harbor regulations that were promulgated in 2000, and a court may require a taxpayer to adhere to those time limits in order to qualify for a valid parking arrangement.

Background on Reverse Tax Deferred Exchanges
Modern day tax deferred exchanges began in the early 1980s with a court ruling (the Starker case) that an exchange for relinquished property and the purchase of corresponding replacement property did not need to take place simultaneously to be valid.  The Tax Reform Act of 1984 contained a legislative response to the holding in the Starker case.  While the Starker case involved a five-year period between sale and purchase, Congress reduced this to a maximum of 180 days from sale to purchase.
There was still a lot of uncertainty at the time on how to do a non-simultaneous exchange, and near the end of 1991, the Treasury Department put forth a detailed body of regulations providing a roadmap for non-simultaneous exchanges. While this guide to a delayed exchange was very welcome, the Treasury Department chose not to include guidance on property “parking” transactions.  Property parking transactions include reverse exchanges in which a taxpayer needs to buy the replacement property prior to the sale of the relinquished property and property improvement exchanges in which a replacement property requires improvements to be paid out of relinquished property sale proceeds. To accomplish these transactions, the exchange company had to take legal title to the property and so it was often said that the property was “parked” with the exchange company.
In 2000, the Treasury Department and IRS published a revenue procedure providing guidance on parking type exchanges. Similar to the time limit of 180 days for a routine exchange, the time limit of 180 days was also allowed for a parking transaction.  As long as a taxpayer followed the rules and wrapped up the parking transaction within 180 days, he was deemed to fall within the safe harbor of properly doing a parking transaction.  Unlike a conventional exchange, in which the exchange company acts as a qualified intermediary, in a parking exchange the company is acting as an accommodator.  Under the safe harbor for parking exchanges, the following are permitted:

The taxpayer can guaranty any loan that is required from a bank to the accommodator for the purchase of the property or for the cost of improvements.
The taxpayer may lend money directly to the accommodator.
The taxpayer can lease the property from the accommodator.
The taxpayer can manage the improvement of the property.
The taxpayer and accommodator can enter into puts, calls and fixed prices.
The ability to readjust monies to account for deviation from the amount the accommodator might use to “buy” the taxpayer’s relinquished property compared to the amount for which that property later sells
For IRS purposes. the accommodator can be made the express agent of the taxpayer (actually this became permitted by PLR 200148042).

Unfortunately, the revenue procedure did not address how to accomplish a parking transaction that required a longer time period than 180 days.  These are generally referred to as non-safe harbor exchanges. It was widely believed that a transaction outside the safe harbor needed to include the following:

The accommodator had to hold the “benefits and burdens” of the property ownership.
The transfer of the property to or from the accommodator had to be at true market value.
The accommodator had to have some “skin in the game,” meaning it had to put some of its own money into the property.
The transaction had to have “risk of loss” if the loan went bad.
Any lease of the property from the accommodator to the taxpayer had to have real economics.
Any of the arrangements between the parties had to be at arm’s length.
Any characterization of agency between the accommodator and taxpayer would be fatal.

As a consequence of these stringent requirements non-safe harbor parking exchanges were exceedingly rare.  Those persons whose day-to-day work included a heavy mix of 1031 exchanges and parking exchanges eagerly awaited a decision. A particular Tax Court case was pending for ten years involving a non-safe harbor property improvement situation.  On August 10, 2016 the United States Tax Court filed its opinion in the Bartell case.
The Bartell Case and What it Means for Reverse Exchanges
Somewhat surprising to the 1031 exchange community, the Tax Court holding in the Bartell case was very taxpayer-favorable.  Among other things the Court noted that:

The taxpayer had all of the benefits and burdens of ownership.
The taxpayer had the benefit of any appreciation in the property while parked.
The taxpayer had the risk of loss of any decline in value of the property.
The taxpayer lent funds to the parking entity .
The taxpayer had the other burdens of ownership such as taxes and other liabilities.
The taxpayer financed and directed construction of improvements.
The taxpayer had actual possession of the property via a lease.

The Court went on to state that other cases at the Tax Court had concluded that the third party (the accommodator) did not have to have the burdens and benefits of property ownership.  The Court went on to say that if its decision was appealed, it would be heard by the Ninth Circuit Court of Appeals and it too had held that burdens and benefits of ownership were not necessary in this context.  The Tax Court also placed substantial emphasis on the fact that in all of the prior favorable rulings, as well as the case in hand, a third party exchange facilitator (the accommodator) held ownership of the property during the transaction. 
This was distinguished from another opposite holding by the Court in a case known as DeCleene v. Commissioner in which the taxpayer had owned the subject property at a prior time and did not use a third party facilitator to hold title.  The court stated, “This feature also distinguishes DeCleene from the myriad of other cases where taxpayers seeking 1031 treatment were careful to interpose a title-holding intermediary between themselves and outright ownership of the replacement property.” Likewise the Court was not bothered by the fact that Bartell had rights of possession of the property pursuant to a lease or that the parking agreement was up to twenty four months.
Takeaways from the Bartell Decision
It appears that a third party accommodator can merely be a placeholder (or a “warehousing” entity as referenced in the case) and that it does not need to receive the burdens and benefits of true ownership. There can also be non-arm’s length agreements between the taxpayer and accommodator.  Utilizing a third party to hold title is a key factor in the decision, so structures that do not use a third party accommodator are ill-advised. 
The amount of time a parking transaction can be in place is open ended.  The Bartell case had an actual parking period of 17 months and the agreements between the parties had a 24-month term.  With regard to the time issue, the Court stated “We express no opinion with respect to the applicability of section 1031 that extends beyond the period at issue in these cases.”  So a term greater than 24 months may be acceptable but cautious practitioners may want to limit transactions to the time limit in Bartell.  As mentioned above, Congress enacted the 180-day limit to forward exchanges to limit the five-year term that was allowed in the Starker case and Congress may very well enact legislation to codify a non-safe harbor parking limit.
While this ruling has precedential value, it is possible that another Tax Court in a different circuit could choose not to follow the rationale set forth in the case.  Similarly, another court might not reach the same conclusion as the Ninth Circuit did in the “myriad of cases” that the Tax Court relied upon.  Lastly, the facts in this case preceded the Safe Harbor regulations that were promulgated in 2000, and a court may require a taxpayer to adhere to those time limits in order to qualify for a valid parking arrangement.

In 1031 Like-Kind Exchange Pitfalls to Avoid, we examined 1031 exchange practices that could inadvertently cause an exchange to go awry.  Most of those examples pertained to the taxpayer coming into constructive receipt of funds.  Here, we’ll look at a variety of other practices where problems sometimes occur.
1031 Exchange Pitfall No. 7 – Execution of the Exchange Agreement and Identification Forms
Often relinquished property in a tax deferred exchange can be held by co-owners, including spouses.  This is documented differently than an LLC where the spouses are sole members.  In the event of co-ownership, either spouse can make decisions on behalf of the couple and even sign the other spouse’s name.   In other co-ownership arrangements, one co-owner may sign for the group of co-owners.  However in an exchange transaction, it is important to stick to the formalities of each person with an ownership signing all applicable documentation.  Failure to do so will invalidate the exchange.
1031 Exchange Pitfall No. 8 – Identification of a Group of Replacement Properties
Most replacement properties are identified according to the three property rule, meaning that a taxpayer may identify up to three replacement properties, regardless of their value. It doesn’t matter how many of the three properties are purchased, however problems arise when one party doing an exchange wishes to acquire a group of properties that are owned by one seller and sold under one contract.  While there is a temptation to consider the group as one property, there does not appear to be any foundation for identifying them as one property. 
A similar issue arises when a taxpayer wishes to identify a small percentage in a group of properties in which that interest is being sold as a Delaware Statutory Trust (DST).  These are popular with taxpayers who want a good-yielding, secure investment that involves no management headaches.  However, the number of different properties underlying the individual investment are considered separate properties for exchange purposes.  The 200% rule may be helpful in these instances.
1031 Exchange Pitfall No. 9 – Diminution of Exchange Proceeds Due to Prorations
In the case of a non-exchange sale of property, it is customary to give the buyer a credit for partial month’s rent held by the taxpayer as well as the security deposits.  Most practitioners prepare an exchange-related closing statement the same way.  While it makes no difference if the transaction is not part of an exchange, it does make a difference when an exchange is taking place.  More specifically, the taxpayer is retaining the value of the rent and security deposits and thereby reducing the cash received for the exchange account.  In other words, a taxpayer cannot retain these items of income and offset the amount of money going into the replacement property.  The best solution is to pay to the buyer directly for the rent and security deposits and not give a credit on the closing statement.
1031 Exchange Pitfall No. 10 – Notice to All Parties to the Agreements
In a 1031 exchange, the taxpayer assigns his rights for both the sale of the old property and purchase of the new property to the qualified intermediary. Under safe harbor exchange procedures, the taxpayer must give notice in writing to all parties to each contract of the assignment of rights to the qualified intermediary.  In most cases when a taxpayer is dealing with one buyer and one seller, this notification is easily done.  However sometimes there are many buying or selling entities as well as third parties.  I recently reviewed a contract in which the title insurance company was included as a party under the contract.  Care must be taken to ensure that all parties receive such notice, not just the counterparty.  Note, however, that although it is customary to request the counterparty’s signature on this notice of assignment in order to prove compliance should the transaction be audited, the counter-signature is not a requirement.
 

In 1031 Like-Kind Exchange Pitfalls to Avoid, we examined 1031 exchange practices that could inadvertently cause an exchange to go awry.  Most of those examples pertained to the taxpayer coming into constructive receipt of funds.  Here, we’ll look at a variety of other practices where problems sometimes occur.
1031 Exchange Pitfall No. 7 – Execution of the Exchange Agreement and Identification Forms
Often relinquished property in a tax deferred exchange can be held by co-owners, including spouses.  This is documented differently than an LLC where the spouses are sole members.  In the event of co-ownership, either spouse can make decisions on behalf of the couple and even sign the other spouse’s name.   In other co-ownership arrangements, one co-owner may sign for the group of co-owners.  However in an exchange transaction, it is important to stick to the formalities of each person with an ownership signing all applicable documentation.  Failure to do so will invalidate the exchange.
1031 Exchange Pitfall No. 8 – Identification of a Group of Replacement Properties
Most replacement properties are identified according to the three property rule, meaning that a taxpayer may identify up to three replacement properties, regardless of their value. It doesn’t matter how many of the three properties are purchased, however problems arise when one party doing an exchange wishes to acquire a group of properties that are owned by one seller and sold under one contract.  While there is a temptation to consider the group as one property, there does not appear to be any foundation for identifying them as one property. 
A similar issue arises when a taxpayer wishes to identify a small percentage in a group of properties in which that interest is being sold as a Delaware Statutory Trust (DST).  These are popular with taxpayers who want a good-yielding, secure investment that involves no management headaches.  However, the number of different properties underlying the individual investment are considered separate properties for exchange purposes.  The 200% rule may be helpful in these instances.
1031 Exchange Pitfall No. 9 – Diminution of Exchange Proceeds Due to Prorations
In the case of a non-exchange sale of property, it is customary to give the buyer a credit for partial month’s rent held by the taxpayer as well as the security deposits.  Most practitioners prepare an exchange-related closing statement the same way.  While it makes no difference if the transaction is not part of an exchange, it does make a difference when an exchange is taking place.  More specifically, the taxpayer is retaining the value of the rent and security deposits and thereby reducing the cash received for the exchange account.  In other words, a taxpayer cannot retain these items of income and offset the amount of money going into the replacement property.  The best solution is to pay to the buyer directly for the rent and security deposits and not give a credit on the closing statement.
1031 Exchange Pitfall No. 10 – Notice to All Parties to the Agreements
In a 1031 exchange, the taxpayer assigns his rights for both the sale of the old property and purchase of the new property to the qualified intermediary. Under safe harbor exchange procedures, the taxpayer must give notice in writing to all parties to each contract of the assignment of rights to the qualified intermediary.  In most cases when a taxpayer is dealing with one buyer and one seller, this notification is easily done.  However sometimes there are many buying or selling entities as well as third parties.  I recently reviewed a contract in which the title insurance company was included as a party under the contract.  Care must be taken to ensure that all parties receive such notice, not just the counterparty.  Note, however, that although it is customary to request the counterparty’s signature on this notice of assignment in order to prove compliance should the transaction be audited, the counter-signature is not a requirement.
 

In 1031 Like-Kind Exchange Pitfalls to Avoid, we examined 1031 exchange practices that could inadvertently cause an exchange to go awry.  Most of those examples pertained to the taxpayer coming into constructive receipt of funds.  Here, we’ll look at a variety of other practices where problems sometimes occur.
1031 Exchange Pitfall No. 7 – Execution of the Exchange Agreement and Identification Forms
Often relinquished property in a tax deferred exchange can be held by co-owners, including spouses.  This is documented differently than an LLC where the spouses are sole members.  In the event of co-ownership, either spouse can make decisions on behalf of the couple and even sign the other spouse’s name.   In other co-ownership arrangements, one co-owner may sign for the group of co-owners.  However in an exchange transaction, it is important to stick to the formalities of each person with an ownership signing all applicable documentation.  Failure to do so will invalidate the exchange.
1031 Exchange Pitfall No. 8 – Identification of a Group of Replacement Properties
Most replacement properties are identified according to the three property rule, meaning that a taxpayer may identify up to three replacement properties, regardless of their value. It doesn’t matter how many of the three properties are purchased, however problems arise when one party doing an exchange wishes to acquire a group of properties that are owned by one seller and sold under one contract.  While there is a temptation to consider the group as one property, there does not appear to be any foundation for identifying them as one property. 
A similar issue arises when a taxpayer wishes to identify a small percentage in a group of properties in which that interest is being sold as a Delaware Statutory Trust (DST).  These are popular with taxpayers who want a good-yielding, secure investment that involves no management headaches.  However, the number of different properties underlying the individual investment are considered separate properties for exchange purposes.  The 200% rule may be helpful in these instances.
1031 Exchange Pitfall No. 9 – Diminution of Exchange Proceeds Due to Prorations
In the case of a non-exchange sale of property, it is customary to give the buyer a credit for partial month’s rent held by the taxpayer as well as the security deposits.  Most practitioners prepare an exchange-related closing statement the same way.  While it makes no difference if the transaction is not part of an exchange, it does make a difference when an exchange is taking place.  More specifically, the taxpayer is retaining the value of the rent and security deposits and thereby reducing the cash received for the exchange account.  In other words, a taxpayer cannot retain these items of income and offset the amount of money going into the replacement property.  The best solution is to pay to the buyer directly for the rent and security deposits and not give a credit on the closing statement.
1031 Exchange Pitfall No. 10 – Notice to All Parties to the Agreements
In a 1031 exchange, the taxpayer assigns his rights for both the sale of the old property and purchase of the new property to the qualified intermediary. Under safe harbor exchange procedures, the taxpayer must give notice in writing to all parties to each contract of the assignment of rights to the qualified intermediary.  In most cases when a taxpayer is dealing with one buyer and one seller, this notification is easily done.  However sometimes there are many buying or selling entities as well as third parties.  I recently reviewed a contract in which the title insurance company was included as a party under the contract.  Care must be taken to ensure that all parties receive such notice, not just the counterparty.  Note, however, that although it is customary to request the counterparty’s signature on this notice of assignment in order to prove compliance should the transaction be audited, the counter-signature is not a requirement.
 

A 1031 like-kind exchange (LKE) program allows a business to postpone the tax hit on sales of used equipment in anticipation of buying replacement equipment, and each year more business owners seize upon the cash-flow benefits available via a 1031 like-kind exchange strategy, recognizing that reinvesting money into their business beats sending it to the government in the form of unnecessary taxes.
In addition to the fact that more cash in your business is never a bad thing, there are noteworthy ancillary benefits that accompany the adoption of a 1031 like-kind exchange program. Even currently, with the availability of bonus depreciation, LKE program clients retain their LKE program and continue to enjoy benefits beyond the cash-flow.
Streamlined Business Practices
The adoption of a 1031 like-kind exchange program does little to disrupt existing practices for the purchase and sales of business equipment, however questions arise in this process, the answers to which  frequently leading to positive outcomes for the business. During implementation, clients question their current business process practices: Why DO we buy our assets that way? Why doesn’t Purchasing receive information about what is currently being sold?
The answers to these questions and others are simple. Companies are BUSY, and if things aren’t broken, they are rarely highlighted for improvement.  Personally, I had not checked auto insurance rates for years, choosing instead to trust my insurance advisor. When I finally did check, I ended up saving over 50% on my premium! The same thing happens in businesses as they begin to closely examine potential improvements in the following areas.
Increase Sales Proceeds in the Disposition of Used Equipment
In the trucking industry, the resale value of used trucks has skyrocketed relative to their trade-in value. Savvy trucking company owners have seen a 10% increase in sales proceeds when selling used equipment direct or through a third party such as an auction company.  Asking “what if” or “why” presents opportunities to increase the bottom line and update long-standing, outdated practices. The same is true in the heavy equipment, leasing, and car rental industries.
Financing Benefits Intrinsic to 1031 Like-Kind Exchanges
A 1031 like-kind exchange program allows owners of rental car, trucking, and equipment fleets to channel cash proceeds into fleet equity instead of income taxes. In so doing, many of these companies see a substantial financing benefit as lenders prefer to extend more favorable terms to a fleet financed with an 80%-20% LTV (loan-to-value) versus the commonly extended (and higher priced) 100% financing options.
Equipment and Depreciation Tracking Benefits of 1031 Like-Kind Exchanges
It’s surprising how many equipment-intensive companies still have asset-tracking and depreciation calculation challenges, especially those located in multiple states with varying tax rules and regulations. A like-kind exchange program often encompasses a solution that fully automates all of these challenges and shortcomings.
Ongoing Business Consulting Expertise and Support
There are few companies these days that are not engaged in some or all of the following activities:

Acquiring new lines or business or selling existing lines of business
Evaluating complex compliance, legal, and tax issues and challenges
Strategizing best practices to maximize performance and profits
Tax certainty around existing programs and strategies.

The creation of a like-kind exchange program includes consulting with tax and business experts, and ongoing access to these resources and their respective support and input is a highly-valued benefit of a properly-implemented LKE program.
Summary
While cash-flow and the opportunity to invest funds that would otherwise be lost to taxes back into the business are the primary reasons for adopting a 1031 like-kind exchange program, the ancillary benefits discussed above are among the reasons companies keep their LKE programs active.