Rev Proc 2000-37, 2000-40
For transactions after September 14, 2000 new safe harbor rules
were created for “Reverse” Like-Kind Exchanges.
IRS will not challenge the qualification of property as either
replacement or relinquished property, or the treatment of the
Exchange Accommodation Title holder as the beneficial owner of
either type of property, if the property is held in a “Qualified
Exchange Accommodation Arrangement” (QEAA).
The agreements used to facilitate a “Reverse” Exchange are
considerably different and more complex than those used for the
standard “Delayed Exchange”. The method is described as follows:
PFE II, will establish a Limited Liability Company in the State
the property is located in (“Exchange Accommodation Titleholder”
or “E.A.T”). The taxpayer/exchange (“Exchanger”) and the E.A.T.
will enter into a Real Estate acquisition a “Qualified Exchange
Accommodation Agreement” (“QEAA”), the E.A.T will agree on certain
terms, to acquire the property, which the Exchanger wishes to use as
it’s “Replacement Property” in the tax deferred 1031 exchange and to
transfer the replacement property to Exchanger at such time as Exchanger has sold the “Relinquished Property” to a third party buyer.
The Exchanger will assign to the E.A.T all of its contractual
rights to purchase the replacement property, and the E.A.T will close escrow and acquire the replacement property. The title to the
replacement property will be vested in the E.A.T. The Exchanger’s
relinquished property will be sold pursuant to the first phase of a
“Delayed Exchange” using a qualified intermediary (“QI”). This
property must be identified within 45 days of the E.A.T agreement and closed within 180 days. The “QI” proceeds from the sale of the
relinquished property will be used to purchase the replacement
property from the E.A.T. The E.A.T. will deed the replacement
property directly to the exchanger, which will complete the exchange.