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Revenue Procedure 2000-37
September 15, 2000.
SECTION 1. PURPOSE
This revenue procedure provides a safe harbor under
which the Internal Revenue Service will not challenge
(a) the qualification of property as either "replacement
property" or "relinquished property" (as defined in
§1.1031(k)-1(a) of the Income Tax Regulations ) for
purposes of §1031 of the Internal Revenue Code and the
regulations thereunder or (b) the treatment of the
"exchange accommodation titleholder" as the beneficial
owner of such property for federal income tax purposes,
if the property is held in a "qualified exchange
accommodation arrangement" (QEAA), as defined in section
4.02 of this revenue procedure.
SECTION 2. BACKGROUND
.01 Section 1031(a)(1) provides that no gain or loss is
recognized on the exchange of property held for
productive use in a trade or business or for investment
if the property is exchanged solely for property of like
kind that is to be held either for productive use in a
trade or business or for investment.
.02 Section 1031(a)(3) provides that property received
by the taxpayer is not treated as like-kind property if
it: (a) is not identified as property to be received in
the exchange on or before the day that is 45 days after
the date on which the taxpayer transfers the
relinquished property; or (b) is received after the
earlier of the date that is 180 days after the date on
which the taxpayer transfers the relinquished property,
or the due date (determined with regard to extension)
for the transferor's federal income tax return for the
year in which the transfer of the relinquished property
occurs.
.03 Determining the owner of property for federal income
tax purposes requires an analysis of all of the facts
and circumstances. As a general rule, the party that
bears the economic burdens and benefits of ownership
will be considered the owner of property for federal
income tax purposes. See Rev. Rul. 82-144 , 1982-2 C.B.
34.
.04 On April 25, 1991, the Treasury Department and the
Service promulgated final regulations under §1.1031(k)-1
providing rules for deferred like-kind exchanges under
§1031(a)(3) . The preamble to the final regulations
states that the deferred exchange rules under
§1031(a)(3) do not apply to reverse-Starker exchanges
(i.e., exchanges where the replacement property is
acquired before the relinquished property is
transferred) and consequently that the final regulations
do not apply to such exchanges. T.D. 8346 , 1991-1 C.B.
150, 151; see Starker v. United States, 602 F.2d 1341
(9th Cir. 1979). However, the preamble indicates that
Treasury and the Service will continue to study the
applicability of the general rule of §1031(a)(1) to
these transactions. T.D. 8346 , 1991-1 C.B. 150, 151.
.05 Since the promulgation of the final regulations
under §1.1031(k)-1 , taxpayers have engaged in a wide
variety of transactions, including so-called "parking"
transactions, to facilitate reverse like-kind exchanges.
Parking transactions typically are designed to "park"
the desired replacement property with an accommodation
party until such time as the taxpayer arranges for the
transfer of the relinquished property to the ultimate
transferee in a simultaneous or deferred exchange. Once
such a transfer is arranged, the taxpayer transfers the
relinquished property to the accommodation party in
exchange for the replacement property, and the
accommodation party then transfers the relinquished
property to the ultimate transferee. In other
situations, an accommodation party may acquire the
desired replacement property on behalf of the taxpayer
and immediately exchange such property with the taxpayer
for the relinquished property, thereafter holding the
relinquished property until the taxpayer arranges for a
transfer of such property to the ultimate transferee. In
the parking arrangements, taxpayers attempt to arrange
the transaction so that the accommodation party has
enough of the benefits and burdens relating to the
property so that the accommodation party will be treated
as the owner for federal income tax purposes.
.06 Treasury and the Service have determined that it is
in the best interest of sound tax administration to
provide taxpayers with a workable means of qualifying
their transactions under §1031 in situations where the
taxpayer has a genuine intent to accomplish a like-kind
exchange at the time that it arranges for the
acquisition of the replacement property and actually
accomplishes the exchange within a short time
thereafter. Accordingly, this revenue procedure provides
a safe harbor that allows a taxpayer to treat the
accommodation party as the owner of the property for
federal income tax purposes, thereby enabling the
taxpayer to accomplish a qualifying like-kind exchange.
SECTION 3. SCOPE
.01 Exclusivity. This revenue procedure provides a safe
harbor for the qualification under §1031 of certain
arrangements between taxpayers and exchange
accommodation titleholders and provides for the
treatment of the exchange accommodation titleholder as
the beneficial owner of the property for federal income
tax purposes. These provisions apply only in the limited
context described in this revenue procedure. The
principles set forth in this revenue procedure have no
application to any federal income tax determinations
other than determinations that involve arrangements
qualifying for the safe harbor.
.02 No inference. No inference is intended with respect
to the federal income tax treatment of arrangements
similar to those described in this revenue procedure
that were entered into prior to the effective date of
this revenue procedure. Further, the Service recognizes
that "parking" transactions can be accomplished outside
of the safe harbor provided in this revenue procedure.
Accordingly, no inference is intended with respect to
the federal income tax treatment of "parking"
transactions that do not satisfy the terms of the safe
harbor provided in this revenue procedure, whether
entered into prior to or after the effective date of
this revenue procedure.
.03 Other issues. Services for the taxpayer in
connection with a person's role as the exchange
accommodation titleholder in a QEAA shall not be taken
into account in determining whether that person or a
related person is a disqualified person (as defined in
§1.1031(k)-1(k) ). Even though property will not fail to
be treated as being held in a QEAA as a result of one or
more arrangements described in section 4.03 of this
revenue procedure, the Service still may recast an
amount paid pursuant to such an arrangement as a fee
paid to the exchange accommodation titleholder for
acting as an exchange accommodation titleholder to the
extent necessary to reflect the true economic substance
of the arrangement. Other federal income tax issues
implicated, but not addressed, in this revenue procedure
include the treatment, for federal income tax purposes,
of payments described in section 4.03(7) and whether an
exchange accommodation titleholder may be precluded from
claiming depreciation deductions (e.g., as a dealer)
with respect to the relinquished property or the
replacement property.
.04 Effect of Noncompliance. If the requirements of this
revenue procedure are not satisfied (for example, the
property subject to a QEAA is not transferred within the
time period provided), then this revenue procedure does
not apply. Accordingly, the determination of whether the
taxpayer or the exchange accommodation titleholder is
the owner of the property for federal income tax
purposes, and the proper treatment of any transactions
entered into by or between the parties, will be made
without regard to the provisions of this revenue
procedure.
SECTION 4. QUALIFIED EXCHANGE ACCOMMODATION
ARRANGEMENTS
.01 Generally. The Service will not challenge the
qualification of property as either "replacement
property" or "relinquished property" (as defined in
§1.1031(k)-1(a) ) for purposes of §1031 and the
regulations thereunder, or the treatment of the exchange
accommodation titleholder as the beneficial owner of
such property for federal income tax purposes, if the
property is held in a QEAA.
.02 Qualified Exchange Accommodation Arrangements. For
purposes of this revenue procedure, property is held in
a QEAA if all of the following requirements are met:
(1) Qualified indicia of ownership of the property is
held by a person (the "exchange accommodation
titleholder") who is not the taxpayer or a disqualified
person and either such person is subject to federal
income tax or, if such person is treated as a
partnership or S corporation for federal income tax
purposes, more than 90 percent of its interests or stock
are owned by partners or shareholders who are subject to
federal income tax. Such qualified indicia of ownership
must be held by the exchange accommodation titleholder
at all times from the date of acquisition by the
exchange accommodation titleholder until the property is
transferred as described in section 4.02(5) of this
revenue procedure. For this purpose, "qualified indicia
of ownership" means legal title to the property, other
indicia of ownership of the property that are treated as
beneficial ownership of the property under applicable
principles of commercial law (e.g., a contract for
deed), or interests in an entity that is disregarded as
an entity separate from its owner for federal income tax
purposes (e.g., a single member limited liability
company) and that holds either legal title to the
property or such other indicia of ownership;
(2) At the time the qualified indicia of ownership of
the property is transferred to the exchange
accommodation titleholder, it is the taxpayer's bona
fide intent that the property held by the exchange
accommodation titleholder represent either replacement
property or relinquished property in an exchange that is
intended to qualify for nonrecognition of gain (in whole
or in part) or loss under §1031 ;
(3) No later than five business days after the transfer
of qualified indicia of ownership of the property to the
exchange accommodation titleholder, the taxpayer and the
exchange accommodation titleholder enter into a written
agreement (the "qualified exchange accommodation
agreement") that provides that the exchange
accommodation titleholder is holding the property for
the benefit of the taxpayer in order to facilitate an
exchange under §1031 and this revenue procedure and that
the taxpayer and the exchange accommodation titleholder
agree to report the acquisition, holding, and
disposition of the property as provided in this revenue
procedure. The agreement must specify that the exchange
accommodation titleholder will be treated as the
beneficial owner of the property for all federal income
tax purposes. Both parties must report the federal
income tax attributes of the property on their federal
income tax returns in a manner consistent with this
agreement;
(4) No later than 45 days after the transfer of
qualified indicia of ownership of the replacement
property to the exchange accommodation titleholder, the
relinquished property is properly identified.
Identification must be made in a manner consistent with
the principles described in §1.1031(k)-1(c) . For
purposes of this section, the taxpayer may properly
identify alternative and multiple properties, as
described in §1.1031(k)-1(c)(4) ;
(5) No later than 180 days after the transfer of
qualified indicia of ownership of the property to the
exchange accommodation titleholder, (a) the property is
transferred (either directly or indirectly through a
qualified intermediary (as defined in §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; and
(6) The combined time period that the relinquished
property and the replacement property are held in a QEAA
does not exceed 180 days.
.03 Permissible Agreements. Property will not fail to be
treated as being held in a QEAA as a result of any one
or more of the following legal or contractual
arrangements, regardless of whether such arrangements
contain terms that typically would result from arm's
length bargaining between unrelated parties with respect
to such arrangements:
(1) An exchange accommodation titleholder that satisfies
the requirements of the qualified intermediary safe
harbor set forth in §1.1031(k)-1(g)(4) may enter into an
exchange agreement with the taxpayer to serve as the
qualified intermediary in a simultaneous or deferred
exchange of the property under §1031 ;
(2) The taxpayer or a disqualified person guarantees
some or all of the obligations of the exchange
accommodation titleholder, including secured or
unsecured debt incurred to acquire the property, or
indemnifies the exchange accommodation titleholder
against costs and expenses;
(3) The taxpayer or a disqualified person loans or
advances funds to the exchange accommodation titleholder
or guarantees a loan or advance to the exchange
accommodation titleholder;
(4) The property is leased by the exchange accommodation
titleholder to the taxpayer or a disqualified person;
(5) The taxpayer or a disqualified person manages the
property, supervises improvement of the property, acts
as a contractor, or otherwise provides services to the
exchange accommodation titleholder with respect to the
property;
(6) The taxpayer and the exchange accommodation
titleholder enter into agreements or arrangements
relating to the purchase or sale of the property,
including puts and calls at fixed or formula prices,
effective for a period not in excess of 185 days from
the date the property is acquired by the exchange
accommodation titleholder; and
(7) 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.
.04 Permissible Treatment. Property will not fail to be
treated as being held in a QEAA merely because the
accounting, regulatory, or state, local, or foreign tax
treatment of the arrangement between the taxpayer and
the exchange accommodation titleholder is different from
the treatment required by section 4.02(3) of this
revenue procedure.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective for QEAAs entered
into with respect to an exchange accommodation
titleholder that acquires qualified indicia of ownership
of property on or after September 15, 2000.
SECTION 6. PAPERWORK REDUCTION ACT
The collections of information contained in this revenue
procedure have been reviewed and approved by the Office
of Management and Budget in accordance with the
Paperwork Reduction Act (44 U.S.C. 3507) under control
number 1545-1701. An agency may not conduct or sponsor,
and a person is not required to respond to, a collection
of information unless the collection of information
displays a valid control number.
The collections of information are contained in section
4.02 of this revenue procedure, which requires taxpayers
and exchange accommodation titleholders to enter into a
written agreement that the exchange accommodation
titleholder will be treated as the beneficial owner of
the property for all federal income tax purposes. This
information is required to ensure that both parties to a
QEAA treat the transaction consistently for federal tax
purposes. The likely respondents are businesses and
other for-profit institutions, and individuals.
The estimated average annual burden to prepare the
agreement and certification is two hours. The estimated
number of respondents is 1,600, and the estimated total
annual reporting burden is 3,200 hours.
The estimated annual frequency of responses is on
occasion.
Books and records relating to a collection of
information must be retained as long as their contents
may become material in the administration of any
internal revenue law. Generally, tax returns and tax
return information are confidential, as required by 26
U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this revenue procedure is J.
Peter Baumgarten of the Office of Associate Chief
Counsel (Income Tax and Accounting). For further
information regarding this revenue procedure, contact
Mr. Baumgarten at (202) 622-4950 (not a toll-free call
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