In PLR 201242003, the IRS permitted tax deferral under Section 1031 even though the Exchange Accommodation Titleholder entered into Qualified Exchange Accommodation Arrangements with more than one entity, including entities related to the taxpayer, who both had a bona fide intent to utilize a reverse exchange format to defer capital gain taxes.
PLR 20122003 notes that Rev. Proc. 2000-37 does not prohibit an Exchange Accommodation Titleholder (EAT) from functioning as an such to more than one taxpayer under multiple Qualified Exchange Accommodation Arrangements (QEAA) for the same parked exchange property.
PLR 20122003 notes that Rev. Proc. 2000-37 does not prohibit an Exchange Accommodation Titleholder (EAT) from functioning as an such to more than one taxpayer under multiple Qualified Exchange Accommodation Arrangements (QEAA) for the same parked exchange property.
Under Code Sec. 1031, gain or
loss isn't recognized currently on the exchange of property held for productive
use in a trade or business or for investment for property of like kind that
will be held for productive use in a trade or business or for investment. The
replacement property must be identified within 45 days after the date that the
property given up in the exchange is relinquished. Additionally, the taxpayer
must actually receive the replacement property no later than (a) 180 days after
the date that the property given up in the exchange is relinquished, or (b) the
due date (with regard to extensions) for the taxpayer's return for the year in
which the relinquished property is given up, whichever is earlier. (Code Sec.
1031(a)(3))
When a two-way (or direct) exchange of like-kind property isn't
possible, the solution often is a multiparty deferred exchange. In a regular
deferred exchange, Seller gives up his property first. Often, however, the
replacement property must be received first, before Seller has transferred his
property. In this situation, the transaction is structured as a reverse
multiparty like-kind exchange.
In Rev
Proc 2000-37, 2000-2 CB 308, IRS said it wouldn't challenge the qualification
of property as either replacement or relinquished property, or the treatment of
the exchange accommodation titleholder as the beneficial owner of either
type of property, if the property is held in a “qualified exchange
accommodation arrangement.”
Property is held in a QEAA if all the following requirements are
met:
- Qualified indicia of ownership (QIO) of the property
are held by the EAT from the date of acquisition by the EAT until the
property is transferred to the taxpayer as replacement property or to
someone other than the taxpayer or a disqualified person as relinquished
property. Among other conditions, the EAT can't be the taxpayer or a
disqualified person under Reg. § 1.1031(k)-1(k)). QIO means legal title,
other indicia of ownership treated as beneficial ownership of the property
under applicable principles of commercial law (e.g., a contract for deed),
or interests in an entity that is disregarded as an entity separate from
its owner for tax purposes (e.g., a single member limited liability
company) and that holds either legal title to the property or such other
indicia of ownership.
- When the QIO of the property is transferred to the EAT,
it is the taxpayer's bona fide intent that the property represent either
replacement property or relinquished property in an exchange intended to
qualify for Code Sec. 1031 treatment.
- No later than five business days after QIO of the
property are transferred to the EAT, the taxpayer and the EAT enter into a
written QEAA providing that: (a) the EAT is holding the property for the
benefit of the taxpayer to facilitate an exchange under Code Sec. 1031 and
Rev Proc 2000-37; (b) both parties agree to report the acquisition,
holding, and disposition of the property as provided in Rev Proc 2000-37;
and (c) the EAT will be treated as the beneficial owner of the property
for all federal income tax purposes. Both parties must report the federal
income tax attributes of the property on their federal returns in a manner
consistent with this agreement.
- No later than 45 days after the transfer of QIO of the
replacement property to the EAT, the relinquished property is properly
identified in a way consistent with the identification requirements in
Reg. § 1.1031(k)-1(c). The taxpayer may properly identify alternative and
multiple properties under the rules of Reg. § 1.1031(k)-1(c)(4).
- No later than 180 days after the transfer of QIO of the
property to the EAT, (a) the property is transferred (either directly or
indirectly) through a qualified intermediary (as defined in Reg. §
1.1031(k)-1(g)(4)) to the taxpayer as replacement property; or (b) the
property is transferred to a person who is not the taxpayer or a
disqualified person as relinquished property.
- The combined time period that the relinquished property
and the replacement property are held in a QEAA does not exceed 180 days.
The PLR concludes that
may enter into QEAAs with more than one entity, including persons related
to Taxpayer, each of which has a bona fide intent to acquire the same property
as the replacement property for their respective exchanges. Rev Proc 2000-37 ,
does not prohibit an accommodation party from serving as an EAT to multiple
taxpayers under multiple and simultaneous QEAAs for the same parked property.
The fact that Related Party's QEAA failed because Taxpayer timely acquired
Property under its QEAA using the same EAT does not invalidate Taxpayer's QEAA.
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