Development

Blog

  • Can Property Improvement Costs Be Part of a 1031 Tax Deferred Exchange?

    What is a build-to suit or 1031 improvement exchange?
    Often a taxpayer will sell his old property (the relinquished property) for a greater value than the cost of purchasing the new property (the replacement property).  If nothing further is done, the excess value that is not reinvested is taxable and referred to as “boot” in the context of an Internal Revenue Code (IRC) 1031 exchange.  However, if the new property is land to be constructed upon (a build-to-suit exchange) or consists of land with a structure on it that needs further improvements (a property improvement exchange), it is possible for the improvement costs to be incurred prior to the exchange.  As is the case with many IRC §1031 procedures, there are safe harbor provisions which must be closely adhered to. 
    Many people assume that so long as the taxpayer uses exchange proceeds to acquire the new property and makes the improvements within the 180-day window for an exchange, the taxpayer can include the cost of the improvements into the value of the new property.  However, IRC §1031 regulations require a valid exchange to consist of like-kind properties being exchanged.  Hiring a contractor or other service provider and paying for labor and materials is not like-kind to the sale of real estate.  As expressed by the IRS the problem is as follows:

    “The transfer of relinquished property is not within the provisions of Section 1031(a) if the relinquished property is transferred in exchange for services. Thus any additional production occurring with respect to the replacement property after the property is received by the taxpayer will not be treated as the receipt of property of a like kind.” (Reg § 1.1031(k)-1(e)(4)).

    The exchange regulations became effective in 1991.  Approximately ten years later, in 2001, the IRS issued Revenue Procedure 2000-37 part of which dealt with this situation.  The IRS came up with the idea of a Qualified Exchange Accommodation Titleholder, an entity able to work around the issue of improvements not being like-kind to the taxpayer’s old property.  Revenue Procedure 2000-37 refers to this entity as an “Exchange Accommodation Titleholder,” now commonly called an EAT.
    There are many companies that act as qualified intermediaries for conventional forward exchanges, and a limited number of those companies are also set up to provide EAT services.  Selecting a knowledgeable qualified intermediary is critical to the success of the transaction (Read why in my recent discussion about the Case of Kreisers Inc. v. First Dakota Title Limited Partnership).
    How does the use of an EAT help in an exchange involving improvements?
    The EAT can acquire title to the new property on behalf of the taxpayer and to “park” it  until the improvements are in place (but in no event beyond 180 days).  Once the EAT transfers ownership of the property to the taxpayer, the taxpayer has acquired improved real estate, which then includes the value of the improvements that were made during the parking period.  For the mutual benefit of the taxpayer and the EAT, it is customary for the EAT to take title to the property using a special purpose entity, usually a limited liability company (LLC).  This insulates the client’s exchange transaction from other clients’ transactions as well as from the affairs of the exchange company acting as the EAT.

    What’s the difference between how forward and reverse build-to-suit or improvement exchanges are structured?
    A build-to-suit or improvement exchange can take two different forms.  The first occurs when the taxpayer has sold property and funded the exchange account prior to the acquisition date of the new property.  The exchange funds can pass to the EAT to cover the purchase price of the new property.  The balance of the funds are given to the EAT as necessary to cover the costs associated with making the improvements.  This is known as a forward build-to-suit or property improvement exchange.
    If the taxpayer wants to begin the improvements before the sale of the old property,  a reverse build-to-suit or property improvement exchange is necessary, since the sequence of buying (by the EAT) and selling is “reverse” from a normal exchange. In the case of a reverse transaction, since the exchange account it not yet funded, funding of the purchase price and improvements needs to be provided to the EAT from a bank or taxpayer loan or sometimes both.  These loans get paid back at the conclusion of the transaction when the exchange funds are used by the taxpayer to acquire the property from the EAT.
    Do all of the improvements need to be made during the 180-day parking period?
    It is not necessary for the improvements to be completed during the parking period, however the taxpayer only gets credit for the value of the land and improvements that are in place at the time the taxpayer takes direct ownership.  The taxpayer can make additional improvements after the exchange has taken place.
    What flexibility does Revenue Procedure 2000-37 allow in a build-to-suit or property improvement exchange?
    Revenue Procedure 2000-37 contains some very taxpayer friendly provisions including:

    The terms of any build-to-suit/property improvement contract between the taxpayer and EAT do not have to be at arm’s length.
    The taxpayer may loan funds directly to the EAT.
    The taxpayer is permitted to guaranty any bank loan made to the EAT.
    The taxpayer may indemnify the EAT for costs and expenses incurred.
    The taxpayer or a “disqualified person” (generally an agent of the taxpayer) may advance funds to the EAT.
    The property may be leased by the EAT to the taxpayer during the parking period.
    The taxpayer may act as the contractor (and receive a fee) or supervise the making of the improvements.

    In a reverse build-to-suit/property improvement exchange, at some time during the parking transaction (but no later than 180 days) the old property gets sold and the net proceeds go into the taxpayer’s  exchange account.  No later than 180 days from the inception of the parking transaction, the exchange funds are sent to the EAT as the nominal seller and the EAT uses these funds to repay the original bank and/or taxpayer loan. 
    The procedure is much the same for a forward build-to-suit/property improvement exchange where the exchange account has been funded prior to the parking transaction.  In this case, although the funds may have been paid out to the EAT, the taxpayer still needs to complete the conventional exchange by acquiring the improved property from the EAT.
    Whether it is a forward or reverse build-to-suit exchange, completing the transaction is the same.  The taxpayer’s rights under the contract to acquire the improved property from the EAT are assigned to the qualified intermediary, and the transfer to the improved property is accomplished by either assigning the membership interest in the EAT to the taxpayer or by the EAT issuing a deed to the taxpayer.
    Customary agreements that would be used to document this type of exchange include:

    Qualified Exchange Accommodation Agreement (required under Revenue Procedure 2000-37)
    Assignment by the taxpayer to the EAT of the purchase contract for the new property
    Loan documents between the EAT as borrower and the lender
    Master Lease if the property has a tenant or tenants
    Sale Contract for the sale of the property from the EAT back to the taxpayer
    Environmental Indemnity Agreement

     

  • Can Property Improvement Costs Be Part of a 1031 Tax Deferred Exchange?

    What is a build-to suit or 1031 improvement exchange?
    Often a taxpayer will sell his old property (the relinquished property) for a greater value than the cost of purchasing the new property (the replacement property).  If nothing further is done, the excess value that is not reinvested is taxable and referred to as “boot” in the context of an Internal Revenue Code (IRC) 1031 exchange.  However, if the new property is land to be constructed upon (a build-to-suit exchange) or consists of land with a structure on it that needs further improvements (a property improvement exchange), it is possible for the improvement costs to be incurred prior to the exchange.  As is the case with many IRC §1031 procedures, there are safe harbor provisions which must be closely adhered to. 
    Many people assume that so long as the taxpayer uses exchange proceeds to acquire the new property and makes the improvements within the 180-day window for an exchange, the taxpayer can include the cost of the improvements into the value of the new property.  However, IRC §1031 regulations require a valid exchange to consist of like-kind properties being exchanged.  Hiring a contractor or other service provider and paying for labor and materials is not like-kind to the sale of real estate.  As expressed by the IRS the problem is as follows:

    “The transfer of relinquished property is not within the provisions of Section 1031(a) if the relinquished property is transferred in exchange for services. Thus any additional production occurring with respect to the replacement property after the property is received by the taxpayer will not be treated as the receipt of property of a like kind.” (Reg § 1.1031(k)-1(e)(4)).

    The exchange regulations became effective in 1991.  Approximately ten years later, in 2001, the IRS issued Revenue Procedure 2000-37 part of which dealt with this situation.  The IRS came up with the idea of a Qualified Exchange Accommodation Titleholder, an entity able to work around the issue of improvements not being like-kind to the taxpayer’s old property.  Revenue Procedure 2000-37 refers to this entity as an “Exchange Accommodation Titleholder,” now commonly called an EAT.
    There are many companies that act as qualified intermediaries for conventional forward exchanges, and a limited number of those companies are also set up to provide EAT services.  Selecting a knowledgeable qualified intermediary is critical to the success of the transaction (Read why in my recent discussion about the Case of Kreisers Inc. v. First Dakota Title Limited Partnership).
    How does the use of an EAT help in an exchange involving improvements?
    The EAT can acquire title to the new property on behalf of the taxpayer and to “park” it  until the improvements are in place (but in no event beyond 180 days).  Once the EAT transfers ownership of the property to the taxpayer, the taxpayer has acquired improved real estate, which then includes the value of the improvements that were made during the parking period.  For the mutual benefit of the taxpayer and the EAT, it is customary for the EAT to take title to the property using a special purpose entity, usually a limited liability company (LLC).  This insulates the client’s exchange transaction from other clients’ transactions as well as from the affairs of the exchange company acting as the EAT.

    What’s the difference between how forward and reverse build-to-suit or improvement exchanges are structured?
    A build-to-suit or improvement exchange can take two different forms.  The first occurs when the taxpayer has sold property and funded the exchange account prior to the acquisition date of the new property.  The exchange funds can pass to the EAT to cover the purchase price of the new property.  The balance of the funds are given to the EAT as necessary to cover the costs associated with making the improvements.  This is known as a forward build-to-suit or property improvement exchange.
    If the taxpayer wants to begin the improvements before the sale of the old property,  a reverse build-to-suit or property improvement exchange is necessary, since the sequence of buying (by the EAT) and selling is “reverse” from a normal exchange. In the case of a reverse transaction, since the exchange account it not yet funded, funding of the purchase price and improvements needs to be provided to the EAT from a bank or taxpayer loan or sometimes both.  These loans get paid back at the conclusion of the transaction when the exchange funds are used by the taxpayer to acquire the property from the EAT.
    Do all of the improvements need to be made during the 180-day parking period?
    It is not necessary for the improvements to be completed during the parking period, however the taxpayer only gets credit for the value of the land and improvements that are in place at the time the taxpayer takes direct ownership.  The taxpayer can make additional improvements after the exchange has taken place.
    What flexibility does Revenue Procedure 2000-37 allow in a build-to-suit or property improvement exchange?
    Revenue Procedure 2000-37 contains some very taxpayer friendly provisions including:

    The terms of any build-to-suit/property improvement contract between the taxpayer and EAT do not have to be at arm’s length.
    The taxpayer may loan funds directly to the EAT.
    The taxpayer is permitted to guaranty any bank loan made to the EAT.
    The taxpayer may indemnify the EAT for costs and expenses incurred.
    The taxpayer or a “disqualified person” (generally an agent of the taxpayer) may advance funds to the EAT.
    The property may be leased by the EAT to the taxpayer during the parking period.
    The taxpayer may act as the contractor (and receive a fee) or supervise the making of the improvements.

    In a reverse build-to-suit/property improvement exchange, at some time during the parking transaction (but no later than 180 days) the old property gets sold and the net proceeds go into the taxpayer’s  exchange account.  No later than 180 days from the inception of the parking transaction, the exchange funds are sent to the EAT as the nominal seller and the EAT uses these funds to repay the original bank and/or taxpayer loan. 
    The procedure is much the same for a forward build-to-suit/property improvement exchange where the exchange account has been funded prior to the parking transaction.  In this case, although the funds may have been paid out to the EAT, the taxpayer still needs to complete the conventional exchange by acquiring the improved property from the EAT.
    Whether it is a forward or reverse build-to-suit exchange, completing the transaction is the same.  The taxpayer’s rights under the contract to acquire the improved property from the EAT are assigned to the qualified intermediary, and the transfer to the improved property is accomplished by either assigning the membership interest in the EAT to the taxpayer or by the EAT issuing a deed to the taxpayer.
    Customary agreements that would be used to document this type of exchange include:

    Qualified Exchange Accommodation Agreement (required under Revenue Procedure 2000-37)
    Assignment by the taxpayer to the EAT of the purchase contract for the new property
    Loan documents between the EAT as borrower and the lender
    Master Lease if the property has a tenant or tenants
    Sale Contract for the sale of the property from the EAT back to the taxpayer
    Environmental Indemnity Agreement

     

  • Can Property Improvement Costs Be Part of a 1031 Tax Deferred Exchange?

    What is a build-to suit or 1031 improvement exchange?
    Often a taxpayer will sell his old property (the relinquished property) for a greater value than the cost of purchasing the new property (the replacement property).  If nothing further is done, the excess value that is not reinvested is taxable and referred to as “boot” in the context of an Internal Revenue Code (IRC) 1031 exchange.  However, if the new property is land to be constructed upon (a build-to-suit exchange) or consists of land with a structure on it that needs further improvements (a property improvement exchange), it is possible for the improvement costs to be incurred prior to the exchange.  As is the case with many IRC §1031 procedures, there are safe harbor provisions which must be closely adhered to. 
    Many people assume that so long as the taxpayer uses exchange proceeds to acquire the new property and makes the improvements within the 180-day window for an exchange, the taxpayer can include the cost of the improvements into the value of the new property.  However, IRC §1031 regulations require a valid exchange to consist of like-kind properties being exchanged.  Hiring a contractor or other service provider and paying for labor and materials is not like-kind to the sale of real estate.  As expressed by the IRS the problem is as follows:

    “The transfer of relinquished property is not within the provisions of Section 1031(a) if the relinquished property is transferred in exchange for services. Thus any additional production occurring with respect to the replacement property after the property is received by the taxpayer will not be treated as the receipt of property of a like kind.” (Reg § 1.1031(k)-1(e)(4)).

    The exchange regulations became effective in 1991.  Approximately ten years later, in 2001, the IRS issued Revenue Procedure 2000-37 part of which dealt with this situation.  The IRS came up with the idea of a Qualified Exchange Accommodation Titleholder, an entity able to work around the issue of improvements not being like-kind to the taxpayer’s old property.  Revenue Procedure 2000-37 refers to this entity as an “Exchange Accommodation Titleholder,” now commonly called an EAT.
    There are many companies that act as qualified intermediaries for conventional forward exchanges, and a limited number of those companies are also set up to provide EAT services.  Selecting a knowledgeable qualified intermediary is critical to the success of the transaction (Read why in my recent discussion about the Case of Kreisers Inc. v. First Dakota Title Limited Partnership).
    How does the use of an EAT help in an exchange involving improvements?
    The EAT can acquire title to the new property on behalf of the taxpayer and to “park” it  until the improvements are in place (but in no event beyond 180 days).  Once the EAT transfers ownership of the property to the taxpayer, the taxpayer has acquired improved real estate, which then includes the value of the improvements that were made during the parking period.  For the mutual benefit of the taxpayer and the EAT, it is customary for the EAT to take title to the property using a special purpose entity, usually a limited liability company (LLC).  This insulates the client’s exchange transaction from other clients’ transactions as well as from the affairs of the exchange company acting as the EAT.

    What’s the difference between how forward and reverse build-to-suit or improvement exchanges are structured?
    A build-to-suit or improvement exchange can take two different forms.  The first occurs when the taxpayer has sold property and funded the exchange account prior to the acquisition date of the new property.  The exchange funds can pass to the EAT to cover the purchase price of the new property.  The balance of the funds are given to the EAT as necessary to cover the costs associated with making the improvements.  This is known as a forward build-to-suit or property improvement exchange.
    If the taxpayer wants to begin the improvements before the sale of the old property,  a reverse build-to-suit or property improvement exchange is necessary, since the sequence of buying (by the EAT) and selling is “reverse” from a normal exchange. In the case of a reverse transaction, since the exchange account it not yet funded, funding of the purchase price and improvements needs to be provided to the EAT from a bank or taxpayer loan or sometimes both.  These loans get paid back at the conclusion of the transaction when the exchange funds are used by the taxpayer to acquire the property from the EAT.
    Do all of the improvements need to be made during the 180-day parking period?
    It is not necessary for the improvements to be completed during the parking period, however the taxpayer only gets credit for the value of the land and improvements that are in place at the time the taxpayer takes direct ownership.  The taxpayer can make additional improvements after the exchange has taken place.
    What flexibility does Revenue Procedure 2000-37 allow in a build-to-suit or property improvement exchange?
    Revenue Procedure 2000-37 contains some very taxpayer friendly provisions including:

    The terms of any build-to-suit/property improvement contract between the taxpayer and EAT do not have to be at arm’s length.
    The taxpayer may loan funds directly to the EAT.
    The taxpayer is permitted to guaranty any bank loan made to the EAT.
    The taxpayer may indemnify the EAT for costs and expenses incurred.
    The taxpayer or a “disqualified person” (generally an agent of the taxpayer) may advance funds to the EAT.
    The property may be leased by the EAT to the taxpayer during the parking period.
    The taxpayer may act as the contractor (and receive a fee) or supervise the making of the improvements.

    In a reverse build-to-suit/property improvement exchange, at some time during the parking transaction (but no later than 180 days) the old property gets sold and the net proceeds go into the taxpayer’s  exchange account.  No later than 180 days from the inception of the parking transaction, the exchange funds are sent to the EAT as the nominal seller and the EAT uses these funds to repay the original bank and/or taxpayer loan. 
    The procedure is much the same for a forward build-to-suit/property improvement exchange where the exchange account has been funded prior to the parking transaction.  In this case, although the funds may have been paid out to the EAT, the taxpayer still needs to complete the conventional exchange by acquiring the improved property from the EAT.
    Whether it is a forward or reverse build-to-suit exchange, completing the transaction is the same.  The taxpayer’s rights under the contract to acquire the improved property from the EAT are assigned to the qualified intermediary, and the transfer to the improved property is accomplished by either assigning the membership interest in the EAT to the taxpayer or by the EAT issuing a deed to the taxpayer.
    Customary agreements that would be used to document this type of exchange include:

    Qualified Exchange Accommodation Agreement (required under Revenue Procedure 2000-37)
    Assignment by the taxpayer to the EAT of the purchase contract for the new property
    Loan documents between the EAT as borrower and the lender
    Master Lease if the property has a tenant or tenants
    Sale Contract for the sale of the property from the EAT back to the taxpayer
    Environmental Indemnity Agreement

     

  • Can Property Improvement Costs Be Part of a 1031 Tax Deferred Exchange?

    What is a build-to suit or 1031 improvement exchange?
    Often a taxpayer will sell his old property (the relinquished property) for a greater value than the cost of purchasing the new property (the replacement property).  If nothing further is done, the excess value that is not reinvested is taxable and referred to as “boot” in the context of an Internal Revenue Code (IRC) 1031 exchange.  However, if the new property is land to be constructed upon (a build-to-suit exchange) or consists of land with a structure on it that needs further improvements (a property improvement exchange), it is possible for the improvement costs to be incurred prior to the exchange.  As is the case with many IRC §1031 procedures, there are safe harbor provisions which must be closely adhered to. 
    Many people assume that so long as the taxpayer uses exchange proceeds to acquire the new property and makes the improvements within the 180-day window for an exchange, the taxpayer can include the cost of the improvements into the value of the new property.  However, IRC §1031 regulations require a valid exchange to consist of like-kind properties being exchanged.  Hiring a contractor or other service provider and paying for labor and materials is not like-kind to the sale of real estate.  As expressed by the IRS the problem is as follows:

    “The transfer of relinquished property is not within the provisions of Section 1031(a) if the relinquished property is transferred in exchange for services. Thus any additional production occurring with respect to the replacement property after the property is received by the taxpayer will not be treated as the receipt of property of a like kind.” (Reg § 1.1031(k)-1(e)(4)).

    The exchange regulations became effective in 1991.  Approximately ten years later, in 2001, the IRS issued Revenue Procedure 2000-37 part of which dealt with this situation.  The IRS came up with the idea of a Qualified Exchange Accommodation Titleholder, an entity able to work around the issue of improvements not being like-kind to the taxpayer’s old property.  Revenue Procedure 2000-37 refers to this entity as an “Exchange Accommodation Titleholder,” now commonly called an EAT.
    There are many companies that act as qualified intermediaries for conventional forward exchanges, and a limited number of those companies are also set up to provide EAT services.  Selecting a knowledgeable qualified intermediary is critical to the success of the transaction (Read why in my recent discussion about the Case of Kreisers Inc. v. First Dakota Title Limited Partnership).
    How does the use of an EAT help in an exchange involving improvements?
    The EAT can acquire title to the new property on behalf of the taxpayer and to “park” it  until the improvements are in place (but in no event beyond 180 days).  Once the EAT transfers ownership of the property to the taxpayer, the taxpayer has acquired improved real estate, which then includes the value of the improvements that were made during the parking period.  For the mutual benefit of the taxpayer and the EAT, it is customary for the EAT to take title to the property using a special purpose entity, usually a limited liability company (LLC).  This insulates the client’s exchange transaction from other clients’ transactions as well as from the affairs of the exchange company acting as the EAT.

    What’s the difference between how forward and reverse build-to-suit or improvement exchanges are structured?
    A build-to-suit or improvement exchange can take two different forms.  The first occurs when the taxpayer has sold property and funded the exchange account prior to the acquisition date of the new property.  The exchange funds can pass to the EAT to cover the purchase price of the new property.  The balance of the funds are given to the EAT as necessary to cover the costs associated with making the improvements.  This is known as a forward build-to-suit or property improvement exchange.
    If the taxpayer wants to begin the improvements before the sale of the old property,  a reverse build-to-suit or property improvement exchange is necessary, since the sequence of buying (by the EAT) and selling is “reverse” from a normal exchange. In the case of a reverse transaction, since the exchange account it not yet funded, funding of the purchase price and improvements needs to be provided to the EAT from a bank or taxpayer loan or sometimes both.  These loans get paid back at the conclusion of the transaction when the exchange funds are used by the taxpayer to acquire the property from the EAT.
    Do all of the improvements need to be made during the 180-day parking period?
    It is not necessary for the improvements to be completed during the parking period, however the taxpayer only gets credit for the value of the land and improvements that are in place at the time the taxpayer takes direct ownership.  The taxpayer can make additional improvements after the exchange has taken place.
    What flexibility does Revenue Procedure 2000-37 allow in a build-to-suit or property improvement exchange?
    Revenue Procedure 2000-37 contains some very taxpayer friendly provisions including:

    The terms of any build-to-suit/property improvement contract between the taxpayer and EAT do not have to be at arm’s length.
    The taxpayer may loan funds directly to the EAT.
    The taxpayer is permitted to guaranty any bank loan made to the EAT.
    The taxpayer may indemnify the EAT for costs and expenses incurred.
    The taxpayer or a “disqualified person” (generally an agent of the taxpayer) may advance funds to the EAT.
    The property may be leased by the EAT to the taxpayer during the parking period.
    The taxpayer may act as the contractor (and receive a fee) or supervise the making of the improvements.

    In a reverse build-to-suit/property improvement exchange, at some time during the parking transaction (but no later than 180 days) the old property gets sold and the net proceeds go into the taxpayer’s  exchange account.  No later than 180 days from the inception of the parking transaction, the exchange funds are sent to the EAT as the nominal seller and the EAT uses these funds to repay the original bank and/or taxpayer loan. 
    The procedure is much the same for a forward build-to-suit/property improvement exchange where the exchange account has been funded prior to the parking transaction.  In this case, although the funds may have been paid out to the EAT, the taxpayer still needs to complete the conventional exchange by acquiring the improved property from the EAT.
    Whether it is a forward or reverse build-to-suit exchange, completing the transaction is the same.  The taxpayer’s rights under the contract to acquire the improved property from the EAT are assigned to the qualified intermediary, and the transfer to the improved property is accomplished by either assigning the membership interest in the EAT to the taxpayer or by the EAT issuing a deed to the taxpayer.
    Customary agreements that would be used to document this type of exchange include:

    Qualified Exchange Accommodation Agreement (required under Revenue Procedure 2000-37)
    Assignment by the taxpayer to the EAT of the purchase contract for the new property
    Loan documents between the EAT as borrower and the lender
    Master Lease if the property has a tenant or tenants
    Sale Contract for the sale of the property from the EAT back to the taxpayer
    Environmental Indemnity Agreement

     

  • Can Property Improvement Costs Be Part of a 1031 Tax Deferred Exchange?

    What is a build-to suit or 1031 improvement exchange?
    Often a taxpayer will sell his old property (the relinquished property) for a greater value than the cost of purchasing the new property (the replacement property).  If nothing further is done, the excess value that is not reinvested is taxable and referred to as “boot” in the context of an Internal Revenue Code (IRC) 1031 exchange.  However, if the new property is land to be constructed upon (a build-to-suit exchange) or consists of land with a structure on it that needs further improvements (a property improvement exchange), it is possible for the improvement costs to be incurred prior to the exchange.  As is the case with many IRC §1031 procedures, there are safe harbor provisions which must be closely adhered to. 
    Many people assume that so long as the taxpayer uses exchange proceeds to acquire the new property and makes the improvements within the 180-day window for an exchange, the taxpayer can include the cost of the improvements into the value of the new property.  However, IRC §1031 regulations require a valid exchange to consist of like-kind properties being exchanged.  Hiring a contractor or other service provider and paying for labor and materials is not like-kind to the sale of real estate.  As expressed by the IRS the problem is as follows:

    “The transfer of relinquished property is not within the provisions of Section 1031(a) if the relinquished property is transferred in exchange for services. Thus any additional production occurring with respect to the replacement property after the property is received by the taxpayer will not be treated as the receipt of property of a like kind.” (Reg § 1.1031(k)-1(e)(4)).

    The exchange regulations became effective in 1991.  Approximately ten years later, in 2001, the IRS issued Revenue Procedure 2000-37 part of which dealt with this situation.  The IRS came up with the idea of a Qualified Exchange Accommodation Titleholder, an entity able to work around the issue of improvements not being like-kind to the taxpayer’s old property.  Revenue Procedure 2000-37 refers to this entity as an “Exchange Accommodation Titleholder,” now commonly called an EAT.
    There are many companies that act as qualified intermediaries for conventional forward exchanges, and a limited number of those companies are also set up to provide EAT services.  Selecting a knowledgeable qualified intermediary is critical to the success of the transaction (Read why in my recent discussion about the Case of Kreisers Inc. v. First Dakota Title Limited Partnership).
    How does the use of an EAT help in an exchange involving improvements?
    The EAT can acquire title to the new property on behalf of the taxpayer and to “park” it  until the improvements are in place (but in no event beyond 180 days).  Once the EAT transfers ownership of the property to the taxpayer, the taxpayer has acquired improved real estate, which then includes the value of the improvements that were made during the parking period.  For the mutual benefit of the taxpayer and the EAT, it is customary for the EAT to take title to the property using a special purpose entity, usually a limited liability company (LLC).  This insulates the client’s exchange transaction from other clients’ transactions as well as from the affairs of the exchange company acting as the EAT.

    What’s the difference between how forward and reverse build-to-suit or improvement exchanges are structured?
    A build-to-suit or improvement exchange can take two different forms.  The first occurs when the taxpayer has sold property and funded the exchange account prior to the acquisition date of the new property.  The exchange funds can pass to the EAT to cover the purchase price of the new property.  The balance of the funds are given to the EAT as necessary to cover the costs associated with making the improvements.  This is known as a forward build-to-suit or property improvement exchange.
    If the taxpayer wants to begin the improvements before the sale of the old property,  a reverse build-to-suit or property improvement exchange is necessary, since the sequence of buying (by the EAT) and selling is “reverse” from a normal exchange. In the case of a reverse transaction, since the exchange account it not yet funded, funding of the purchase price and improvements needs to be provided to the EAT from a bank or taxpayer loan or sometimes both.  These loans get paid back at the conclusion of the transaction when the exchange funds are used by the taxpayer to acquire the property from the EAT.
    Do all of the improvements need to be made during the 180-day parking period?
    It is not necessary for the improvements to be completed during the parking period, however the taxpayer only gets credit for the value of the land and improvements that are in place at the time the taxpayer takes direct ownership.  The taxpayer can make additional improvements after the exchange has taken place.
    What flexibility does Revenue Procedure 2000-37 allow in a build-to-suit or property improvement exchange?
    Revenue Procedure 2000-37 contains some very taxpayer friendly provisions including:

    The terms of any build-to-suit/property improvement contract between the taxpayer and EAT do not have to be at arm’s length.
    The taxpayer may loan funds directly to the EAT.
    The taxpayer is permitted to guaranty any bank loan made to the EAT.
    The taxpayer may indemnify the EAT for costs and expenses incurred.
    The taxpayer or a “disqualified person” (generally an agent of the taxpayer) may advance funds to the EAT.
    The property may be leased by the EAT to the taxpayer during the parking period.
    The taxpayer may act as the contractor (and receive a fee) or supervise the making of the improvements.

    In a reverse build-to-suit/property improvement exchange, at some time during the parking transaction (but no later than 180 days) the old property gets sold and the net proceeds go into the taxpayer’s  exchange account.  No later than 180 days from the inception of the parking transaction, the exchange funds are sent to the EAT as the nominal seller and the EAT uses these funds to repay the original bank and/or taxpayer loan. 
    The procedure is much the same for a forward build-to-suit/property improvement exchange where the exchange account has been funded prior to the parking transaction.  In this case, although the funds may have been paid out to the EAT, the taxpayer still needs to complete the conventional exchange by acquiring the improved property from the EAT.
    Whether it is a forward or reverse build-to-suit exchange, completing the transaction is the same.  The taxpayer’s rights under the contract to acquire the improved property from the EAT are assigned to the qualified intermediary, and the transfer to the improved property is accomplished by either assigning the membership interest in the EAT to the taxpayer or by the EAT issuing a deed to the taxpayer.
    Customary agreements that would be used to document this type of exchange include:

    Qualified Exchange Accommodation Agreement (required under Revenue Procedure 2000-37)
    Assignment by the taxpayer to the EAT of the purchase contract for the new property
    Loan documents between the EAT as borrower and the lender
    Master Lease if the property has a tenant or tenants
    Sale Contract for the sale of the property from the EAT back to the taxpayer
    Environmental Indemnity Agreement

     

  • Case Study: A Reverse Exchange of Real Estate – Parking the Relinquished Property

    Download the free step-by-step guide, https://info.accruit.com/reverse-exchange-whitepaper”>Parking the Relinquished Property in a Reverse Exchange.
    The Facts
    We were contacted by a potential client about doing an Internal Revenue Code (IRC) §1031 tax deferred exchange.  The client needed to acquire, or risk losing, the desired replacement property (new property) in Dillon, Colorado. However, the contract with his buyer for the sale of his relinquished property (old property) in Littleton, Colorado was not scheduled to close until November 28, 2014, a month after the date of closing for the new property.  The purchase price for the new property was $562,000. 
    In a normal tax deferred exchange, or “forward exchange,” the taxpayer sells the relinquished property first and uses the exchange proceeds to acquire the replacement property.  This situation, in which the taxpayer needs to take ownership of the new property prior to the sale of the old property, i.e. in a reverse sequence, is referred to as a “reverse exchange.”
    The Problem
    The client wanted to do an exchange of his old property for the new property but was unable to find a buyer for his old property prior to the scheduled closing of the new property.  Unfortunately, the IRS does not recognize the validity of a “pure reverse exchange,” in which the taxpayer acquires the new property before the sale of the old property.
    The Options
    In response to this common conundrum, the IRS issued Revenue Procedure (Rev. Proc.) 2000-37  to enable taxpayers to effectively buy before selling.  There are two approved solutions:

    The exchange company purchases the taxpayer’s old property and holds it pending the sale of that property to a bona fide third party buyer.  This is sometimes referred to as an “exchange first” reverse exchange.
    The exchange company to https://info.accruit.com/reverse-exchange-whitepaper”>acquire title to the replacement property and park it on behalf of the taxpayer until the taxpayer sells the old property. This is sometimes known as an “exchange last” reverse exchange.  

    When the exchange company services a routine forward exchange, it acts as a qualified intermediary (QI).  When, as in the two options above, an exchange company services a reverse exchange in which it has to take title to a property, the Rev. Proc. refers to this as acting as an exchange accommodation titleholder (EAT). There are several factors for the taxpayer, their advisors and their exchange company to consider when determining whether the old property or the new property is better to park with the EAT. Those considerations may include:

    What are the relative values of the properties (e.g. the old property may have a value of $100k and the replacement property $1MM)?
    Is the old property subject to debt?
    Are there any transfer tax considerations in connection with parking either property (there is some authority that parking transactions are exempt from transfer taxes)?
    Are there any environmental issues associated with either property?
    Are there special financing issues surrounding the replacement property such as a HUD loan, TIF (tax incremental financing), Enterprise Zone, etc.?

    In an exchange-first reverse exchange, the EAT takes title to the old property and “parks,” or holds title to that property until the taxpayer is able to arrange a sale of that property to a third party buyer.  For Section 1031 purposes, this acquisition by the EAT constitutes a “sale” by the taxpayer and this sale allows the taxpayer to restructure the transaction by “selling” the old property before buying the new property. 
    Conceptually this is no different than the taxpayer finding a ready, willing and able buyer of the old property who is able to close on the purchase from the taxpayer just prior to the taxpayer’s acquisition of the new property.  Since the structure allows a sale before the purchase, the sale and purchase become a standard exchange using a Qualified Intermediary to link the sale to the purchase.   Use of the reverse exchange does not remove the need to do a standard forward exchange, rather the reverse exchange requires use of the EAT to acquire the property and use of the QI to affect an exchange of the old property for the new property.
    In this type of reverse exchange, the EAT, having acquired the old property from the taxpayer, later becomes the property’s seller to an actual buyer identified by the taxpayer.  Under the reverse exchange rules, the taxpayer has 180 days (or less, depending upon the tax return filing date for the year in which the property parking takes place)  to arrange a sale to a third party.  
    At times, the taxpayer is unable to find a buyer within this time period or “parking period.”  In this case the reverse exchange expires and the EAT simply transfers the old property back to the taxpayer.  When this happens there is no valid exchange by the taxpayer of the old property for the new property. The taxpayer may still wish to do a conventional forward exchange upon the sale of the old property, but a new replacement property would need to be identified and acquired as part of that new forward exchange.
    If, when the old property is being parked, it is already under contract, then the sale value is certain.  More often than not, it is not under contract, and the taxpayer has to estimate the market value for the sale to the EAT, an estimate which may be higher or lower than the eventual sale price to the third party buyer.  The drafters of the Rev. Proc. foresaw the difficulty in exactly pinpointing the sale price in advance of an actual contract with the third party buyer, and the Rev. Proc. allows the taxpayer and EAT to retroactively modify the values used at the time of the property parking to correspond with the actual facts:  It is permissible that:

    “the taxpayer and the exchange accommodation titleholder enter into agreements or arrangements providing that any variation in the value of a relinquished property from the estimated value on the date of the exchange accommodation titleholder’s receipt of the property be taken into account upon the exchange accommodation titleholder’s disposition of the relinquished property through the taxpayer’s advance of funds to, or receipt of funds from, the exchange accommodation titleholder.”

    The Solution
    Returning to our client, the old property had the estimated value of $163,000.  The new property was under contract for $562,000.  In this case, the old property had no debt on it, and the transaction began with a cash loan from the client to the EAT in the amount of $163,000.  In the event the old property had debt on it, the EAT could acquire it for the value of the equity and take title subject to the existing debt.  In this case, if the old property had had $100k of debt, the property could be sold to the EAT for $63k.  Be cognizant of any “due on sale/transfer” provisions in connection with the debt.
    This loan was documented by a note and secured by a pledge of the membership interest in the special purpose entitiy that was set up by the EAT, the taxpayer or their attorney to hold title.  The sale of the old property to the EAT took place on October 23, 2014.  The client directed that the funds be placed in his forward exchange account, and he used those funds towards the purchase of the new property on October 28, 2014.    The client borrowed the difference of $399k from a bank lender to reach the total purchase price of $562k.  
    The old property was sold by the EAT to the third party buyer on November 28, 2014, as originally scheduled.  The proceeds of the sale went to pay off the original cash loan from the client to the EAT and the LLC was dissolved.
    Relinquished property reverse exchanges are documented as follows:

    Exchanger Information Form
    A Qualified Exchange Accommodation Agreement (the reverse exchange agreement)
    Sale contract between the taxpayer as seller and the EAT as buyer
    Note from EAT to taxpayer in the amount lent to the EAT
    Pledge of membership interest in the special purpose limited liability company used by EAT to take title to the property
    Master Lease from the EAT to the client enabling the taxpayer to enter into tenant leases directly with the tenants and to provide property management to remain with the taxpayer
    Environmental Indemnity Agreement from taxpayer to EAT
    Property liability insurance in the name of the EAT

    The Result
    The client used the reverse exchange safe harbor to effectively sell the relinquished property prior to the purchase of the replacement property and achieved tax deferral on the entire gain associated with the relinquished property.

  • Case Study: A Reverse Exchange of Real Estate – Parking the Relinquished Property

    Download the free step-by-step guide, https://info.accruit.com/reverse-exchange-whitepaper”>Parking the Relinquished Property in a Reverse Exchange.
    The Facts
    We were contacted by a potential client about doing an Internal Revenue Code (IRC) §1031 tax deferred exchange.  The client needed to acquire, or risk losing, the desired replacement property (new property) in Dillon, Colorado. However, the contract with his buyer for the sale of his relinquished property (old property) in Littleton, Colorado was not scheduled to close until November 28, 2014, a month after the date of closing for the new property.  The purchase price for the new property was $562,000. 
    In a normal tax deferred exchange, or “forward exchange,” the taxpayer sells the relinquished property first and uses the exchange proceeds to acquire the replacement property.  This situation, in which the taxpayer needs to take ownership of the new property prior to the sale of the old property, i.e. in a reverse sequence, is referred to as a “reverse exchange.”
    The Problem
    The client wanted to do an exchange of his old property for the new property but was unable to find a buyer for his old property prior to the scheduled closing of the new property.  Unfortunately, the IRS does not recognize the validity of a “pure reverse exchange,” in which the taxpayer acquires the new property before the sale of the old property.
    The Options
    In response to this common conundrum, the IRS issued Revenue Procedure (Rev. Proc.) 2000-37  to enable taxpayers to effectively buy before selling.  There are two approved solutions:

    The exchange company purchases the taxpayer’s old property and holds it pending the sale of that property to a bona fide third party buyer.  This is sometimes referred to as an “exchange first” reverse exchange.
    The exchange company to https://info.accruit.com/reverse-exchange-whitepaper”>acquire title to the replacement property and park it on behalf of the taxpayer until the taxpayer sells the old property. This is sometimes known as an “exchange last” reverse exchange.  

    When the exchange company services a routine forward exchange, it acts as a qualified intermediary (QI).  When, as in the two options above, an exchange company services a reverse exchange in which it has to take title to a property, the Rev. Proc. refers to this as acting as an exchange accommodation titleholder (EAT). There are several factors for the taxpayer, their advisors and their exchange company to consider when determining whether the old property or the new property is better to park with the EAT. Those considerations may include:

    What are the relative values of the properties (e.g. the old property may have a value of $100k and the replacement property $1MM)?
    Is the old property subject to debt?
    Are there any transfer tax considerations in connection with parking either property (there is some authority that parking transactions are exempt from transfer taxes)?
    Are there any environmental issues associated with either property?
    Are there special financing issues surrounding the replacement property such as a HUD loan, TIF (tax incremental financing), Enterprise Zone, etc.?

    In an exchange-first reverse exchange, the EAT takes title to the old property and “parks,” or holds title to that property until the taxpayer is able to arrange a sale of that property to a third party buyer.  For Section 1031 purposes, this acquisition by the EAT constitutes a “sale” by the taxpayer and this sale allows the taxpayer to restructure the transaction by “selling” the old property before buying the new property. 
    Conceptually this is no different than the taxpayer finding a ready, willing and able buyer of the old property who is able to close on the purchase from the taxpayer just prior to the taxpayer’s acquisition of the new property.  Since the structure allows a sale before the purchase, the sale and purchase become a standard exchange using a Qualified Intermediary to link the sale to the purchase.   Use of the reverse exchange does not remove the need to do a standard forward exchange, rather the reverse exchange requires use of the EAT to acquire the property and use of the QI to affect an exchange of the old property for the new property.
    In this type of reverse exchange, the EAT, having acquired the old property from the taxpayer, later becomes the property’s seller to an actual buyer identified by the taxpayer.  Under the reverse exchange rules, the taxpayer has 180 days (or less, depending upon the tax return filing date for the year in which the property parking takes place)  to arrange a sale to a third party.  
    At times, the taxpayer is unable to find a buyer within this time period or “parking period.”  In this case the reverse exchange expires and the EAT simply transfers the old property back to the taxpayer.  When this happens there is no valid exchange by the taxpayer of the old property for the new property. The taxpayer may still wish to do a conventional forward exchange upon the sale of the old property, but a new replacement property would need to be identified and acquired as part of that new forward exchange.
    If, when the old property is being parked, it is already under contract, then the sale value is certain.  More often than not, it is not under contract, and the taxpayer has to estimate the market value for the sale to the EAT, an estimate which may be higher or lower than the eventual sale price to the third party buyer.  The drafters of the Rev. Proc. foresaw the difficulty in exactly pinpointing the sale price in advance of an actual contract with the third party buyer, and the Rev. Proc. allows the taxpayer and EAT to retroactively modify the values used at the time of the property parking to correspond with the actual facts:  It is permissible that:

    “the taxpayer and the exchange accommodation titleholder enter into agreements or arrangements providing that any variation in the value of a relinquished property from the estimated value on the date of the exchange accommodation titleholder’s receipt of the property be taken into account upon the exchange accommodation titleholder’s disposition of the relinquished property through the taxpayer’s advance of funds to, or receipt of funds from, the exchange accommodation titleholder.”

    The Solution
    Returning to our client, the old property had the estimated value of $163,000.  The new property was under contract for $562,000.  In this case, the old property had no debt on it, and the transaction began with a cash loan from the client to the EAT in the amount of $163,000.  In the event the old property had debt on it, the EAT could acquire it for the value of the equity and take title subject to the existing debt.  In this case, if the old property had had $100k of debt, the property could be sold to the EAT for $63k.  Be cognizant of any “due on sale/transfer” provisions in connection with the debt.
    This loan was documented by a note and secured by a pledge of the membership interest in the special purpose entitiy that was set up by the EAT, the taxpayer or their attorney to hold title.  The sale of the old property to the EAT took place on October 23, 2014.  The client directed that the funds be placed in his forward exchange account, and he used those funds towards the purchase of the new property on October 28, 2014.    The client borrowed the difference of $399k from a bank lender to reach the total purchase price of $562k.  
    The old property was sold by the EAT to the third party buyer on November 28, 2014, as originally scheduled.  The proceeds of the sale went to pay off the original cash loan from the client to the EAT and the LLC was dissolved.
    Relinquished property reverse exchanges are documented as follows:

    Exchanger Information Form
    A Qualified Exchange Accommodation Agreement (the reverse exchange agreement)
    Sale contract between the taxpayer as seller and the EAT as buyer
    Note from EAT to taxpayer in the amount lent to the EAT
    Pledge of membership interest in the special purpose limited liability company used by EAT to take title to the property
    Master Lease from the EAT to the client enabling the taxpayer to enter into tenant leases directly with the tenants and to provide property management to remain with the taxpayer
    Environmental Indemnity Agreement from taxpayer to EAT
    Property liability insurance in the name of the EAT

    The Result
    The client used the reverse exchange safe harbor to effectively sell the relinquished property prior to the purchase of the replacement property and achieved tax deferral on the entire gain associated with the relinquished property.

  • Case Study: A Reverse Exchange of Real Estate – Parking the Relinquished Property

    Download the free step-by-step guide, https://info.accruit.com/reverse-exchange-whitepaper”>Parking the Relinquished Property in a Reverse Exchange.
    The Facts
    We were contacted by a potential client about doing an Internal Revenue Code (IRC) §1031 tax deferred exchange.  The client needed to acquire, or risk losing, the desired replacement property (new property) in Dillon, Colorado. However, the contract with his buyer for the sale of his relinquished property (old property) in Littleton, Colorado was not scheduled to close until November 28, 2014, a month after the date of closing for the new property.  The purchase price for the new property was $562,000. 
    In a normal tax deferred exchange, or “forward exchange,” the taxpayer sells the relinquished property first and uses the exchange proceeds to acquire the replacement property.  This situation, in which the taxpayer needs to take ownership of the new property prior to the sale of the old property, i.e. in a reverse sequence, is referred to as a “reverse exchange.”
    The Problem
    The client wanted to do an exchange of his old property for the new property but was unable to find a buyer for his old property prior to the scheduled closing of the new property.  Unfortunately, the IRS does not recognize the validity of a “pure reverse exchange,” in which the taxpayer acquires the new property before the sale of the old property.
    The Options
    In response to this common conundrum, the IRS issued Revenue Procedure (Rev. Proc.) 2000-37  to enable taxpayers to effectively buy before selling.  There are two approved solutions:

    The exchange company purchases the taxpayer’s old property and holds it pending the sale of that property to a bona fide third party buyer.  This is sometimes referred to as an “exchange first” reverse exchange.
    The exchange company to https://info.accruit.com/reverse-exchange-whitepaper”>acquire title to the replacement property and park it on behalf of the taxpayer until the taxpayer sells the old property. This is sometimes known as an “exchange last” reverse exchange.  

    When the exchange company services a routine forward exchange, it acts as a qualified intermediary (QI).  When, as in the two options above, an exchange company services a reverse exchange in which it has to take title to a property, the Rev. Proc. refers to this as acting as an exchange accommodation titleholder (EAT). There are several factors for the taxpayer, their advisors and their exchange company to consider when determining whether the old property or the new property is better to park with the EAT. Those considerations may include:

    What are the relative values of the properties (e.g. the old property may have a value of $100k and the replacement property $1MM)?
    Is the old property subject to debt?
    Are there any transfer tax considerations in connection with parking either property (there is some authority that parking transactions are exempt from transfer taxes)?
    Are there any environmental issues associated with either property?
    Are there special financing issues surrounding the replacement property such as a HUD loan, TIF (tax incremental financing), Enterprise Zone, etc.?

    In an exchange-first reverse exchange, the EAT takes title to the old property and “parks,” or holds title to that property until the taxpayer is able to arrange a sale of that property to a third party buyer.  For Section 1031 purposes, this acquisition by the EAT constitutes a “sale” by the taxpayer and this sale allows the taxpayer to restructure the transaction by “selling” the old property before buying the new property. 
    Conceptually this is no different than the taxpayer finding a ready, willing and able buyer of the old property who is able to close on the purchase from the taxpayer just prior to the taxpayer’s acquisition of the new property.  Since the structure allows a sale before the purchase, the sale and purchase become a standard exchange using a Qualified Intermediary to link the sale to the purchase.   Use of the reverse exchange does not remove the need to do a standard forward exchange, rather the reverse exchange requires use of the EAT to acquire the property and use of the QI to affect an exchange of the old property for the new property.
    In this type of reverse exchange, the EAT, having acquired the old property from the taxpayer, later becomes the property’s seller to an actual buyer identified by the taxpayer.  Under the reverse exchange rules, the taxpayer has 180 days (or less, depending upon the tax return filing date for the year in which the property parking takes place)  to arrange a sale to a third party.  
    At times, the taxpayer is unable to find a buyer within this time period or “parking period.”  In this case the reverse exchange expires and the EAT simply transfers the old property back to the taxpayer.  When this happens there is no valid exchange by the taxpayer of the old property for the new property. The taxpayer may still wish to do a conventional forward exchange upon the sale of the old property, but a new replacement property would need to be identified and acquired as part of that new forward exchange.
    If, when the old property is being parked, it is already under contract, then the sale value is certain.  More often than not, it is not under contract, and the taxpayer has to estimate the market value for the sale to the EAT, an estimate which may be higher or lower than the eventual sale price to the third party buyer.  The drafters of the Rev. Proc. foresaw the difficulty in exactly pinpointing the sale price in advance of an actual contract with the third party buyer, and the Rev. Proc. allows the taxpayer and EAT to retroactively modify the values used at the time of the property parking to correspond with the actual facts:  It is permissible that:

    “the taxpayer and the exchange accommodation titleholder enter into agreements or arrangements providing that any variation in the value of a relinquished property from the estimated value on the date of the exchange accommodation titleholder’s receipt of the property be taken into account upon the exchange accommodation titleholder’s disposition of the relinquished property through the taxpayer’s advance of funds to, or receipt of funds from, the exchange accommodation titleholder.”

    The Solution
    Returning to our client, the old property had the estimated value of $163,000.  The new property was under contract for $562,000.  In this case, the old property had no debt on it, and the transaction began with a cash loan from the client to the EAT in the amount of $163,000.  In the event the old property had debt on it, the EAT could acquire it for the value of the equity and take title subject to the existing debt.  In this case, if the old property had had $100k of debt, the property could be sold to the EAT for $63k.  Be cognizant of any “due on sale/transfer” provisions in connection with the debt.
    This loan was documented by a note and secured by a pledge of the membership interest in the special purpose entitiy that was set up by the EAT, the taxpayer or their attorney to hold title.  The sale of the old property to the EAT took place on October 23, 2014.  The client directed that the funds be placed in his forward exchange account, and he used those funds towards the purchase of the new property on October 28, 2014.    The client borrowed the difference of $399k from a bank lender to reach the total purchase price of $562k.  
    The old property was sold by the EAT to the third party buyer on November 28, 2014, as originally scheduled.  The proceeds of the sale went to pay off the original cash loan from the client to the EAT and the LLC was dissolved.
    Relinquished property reverse exchanges are documented as follows:

    Exchanger Information Form
    A Qualified Exchange Accommodation Agreement (the reverse exchange agreement)
    Sale contract between the taxpayer as seller and the EAT as buyer
    Note from EAT to taxpayer in the amount lent to the EAT
    Pledge of membership interest in the special purpose limited liability company used by EAT to take title to the property
    Master Lease from the EAT to the client enabling the taxpayer to enter into tenant leases directly with the tenants and to provide property management to remain with the taxpayer
    Environmental Indemnity Agreement from taxpayer to EAT
    Property liability insurance in the name of the EAT

    The Result
    The client used the reverse exchange safe harbor to effectively sell the relinquished property prior to the purchase of the replacement property and achieved tax deferral on the entire gain associated with the relinquished property.

  • Accruit Expands with New Hires in Business Development and Digital Marketing

    Accruit, LLC, the nation’s leading provider of qualified intermediary (QI) services and 1031 like-kind exchange (LKE) program solutions, is pleased to announce two new additions to the company: Chad Schleicher, in the role of business development manager, and Mark Flanagan as digital marketing & sales manager.
    Schleicher comes to Accruit from Inland Securities Corporation’s Chicago headquarters where he was a broker-dealer relationship manager. Prior to this, Schleicher worked with Cole Capital as a property accountant. He holds a Graduate Accounting Certificate and Bachelor of Science in Business and Finance from the University of Phoenix.
    At Accruit, Schleicher is responsible for the creation and execution of business development strategies, the facilitation of ongoing relationships with Accruit’s clients and the advancement of new client opportunities. Based in Phoenix, AZ, he manages Accruit’s sales in the Southwestern United States territory.
    Mark Flanagan joins Accruit with an extensive background in online marketing and digital content strategy, most recently as the manager of web analytics for Active Network. As Accruit’s Digital Marketing & Sales Manager, Flanagan manages marketing initiatives, collateral, and campaigns across Accruit’s digital channels.
    “Chad and Mark are tremendous additions to the team,” said Accruit’s President and CEO Brent Abrahm.  “We continue to see growth across our product lines, and adding deeper experience to both business development and marketing will position us well going forward.”  
    “They were carefully selected for their background and experience, and we’re excited to add them to our talented staff,” added Chief Operating Officer Karen Kemerling. “Their presence at Accruit will help foster growth in the critical areas of sales and digital marketing. We look forward to their contributions in 2015 and beyond.”
    About Accruit
    Denver, Colorado-based Accruit, LLC is the nation’s leading provider of qualified intermediary and 1031 like-kind exchange program solutions, serving more than 20 industries. Accruit handles all types of LKEs including real estate, business assets, collectibles, and franchises, facilitating all types of complicated forward, reverse and improvement exchange transactions nationwide.  Since 2010, through a joint business relationship, Accruit and PricewaterhouseCoopers (PwC) together provide clients the absolute highest level of expertise in 1031 LKE program management. A year later, Accruit expanded its real estate and franchise exchange offerings through the strategic acquisition of North Star Deferred Exchange LLC, a Chicago-based national provider of QI and Exchange Accommodation Titleholder (EAT) services, in order to provide the exchange industry with one of the broadest service offerings available.

  • Accruit Expands with New Hires in Business Development and Digital Marketing

    Accruit, LLC, the nation’s leading provider of qualified intermediary (QI) services and 1031 like-kind exchange (LKE) program solutions, is pleased to announce two new additions to the company: Chad Schleicher, in the role of business development manager, and Mark Flanagan as digital marketing & sales manager.
    Schleicher comes to Accruit from Inland Securities Corporation’s Chicago headquarters where he was a broker-dealer relationship manager. Prior to this, Schleicher worked with Cole Capital as a property accountant. He holds a Graduate Accounting Certificate and Bachelor of Science in Business and Finance from the University of Phoenix.
    At Accruit, Schleicher is responsible for the creation and execution of business development strategies, the facilitation of ongoing relationships with Accruit’s clients and the advancement of new client opportunities. Based in Phoenix, AZ, he manages Accruit’s sales in the Southwestern United States territory.
    Mark Flanagan joins Accruit with an extensive background in online marketing and digital content strategy, most recently as the manager of web analytics for Active Network. As Accruit’s Digital Marketing & Sales Manager, Flanagan manages marketing initiatives, collateral, and campaigns across Accruit’s digital channels.
    “Chad and Mark are tremendous additions to the team,” said Accruit’s President and CEO Brent Abrahm.  “We continue to see growth across our product lines, and adding deeper experience to both business development and marketing will position us well going forward.”  
    “They were carefully selected for their background and experience, and we’re excited to add them to our talented staff,” added Chief Operating Officer Karen Kemerling. “Their presence at Accruit will help foster growth in the critical areas of sales and digital marketing. We look forward to their contributions in 2015 and beyond.”
    About Accruit
    Denver, Colorado-based Accruit, LLC is the nation’s leading provider of qualified intermediary and 1031 like-kind exchange program solutions, serving more than 20 industries. Accruit handles all types of LKEs including real estate, business assets, collectibles, and franchises, facilitating all types of complicated forward, reverse and improvement exchange transactions nationwide.  Since 2010, through a joint business relationship, Accruit and PricewaterhouseCoopers (PwC) together provide clients the absolute highest level of expertise in 1031 LKE program management. A year later, Accruit expanded its real estate and franchise exchange offerings through the strategic acquisition of North Star Deferred Exchange LLC, a Chicago-based national provider of QI and Exchange Accommodation Titleholder (EAT) services, in order to provide the exchange industry with one of the broadest service offerings available.