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1031 New Developments

Tax Reform Unified Framework

Over the last several years there have been numerous

proposals that might eliminate or curtail the availability

of Section 1031. In reviewing the Senate tax proposal

there is nothing specific to 1031. We are monitoring all

legislation for anything pertinent to the future of 1031.

Our industry will continue to communicate with decisionmakers regarding

how tax deferred exchanges support investment in the American


Non-Safe Harbor Reverse Exchanges - IRS Non-acquiescence

The IRS issued Revenue Procedure 2000-37 providing a safe

harbor for reverse exchanges. The provisions of this are relatively userfriendly

allowing the Taxpayer to acquire replacement property, first, using

an Exchange Accommodation Titleholder ("EAT") and sell the relinquished

property later. Most exchange companies are willing to serve as the EAT;

temporarily owning either the replacement property or the relinquished

property. We refer to this as a "parking" arrangement. The one negative of

this revenue procedure is the fact that the EAT may only hold the property

for 180 days during which the Taxpayer needs to get the relinquished

property sold and closed.

The question - Is there a way to structure a reverse exchange to

extend beyond the 180 days of the safe harbor? The generally held belief

is that to do so the EAT needs to have some benefits and burdens of

ownership in the property.

Last year the US Tax Court decided a case in which the exchange

company held the property for 17 months. Estate of George H. Bartell, et

al. v. Commissioner, 147 TC 5 (June 6, 2016). This was a case out of

Washington State and the facts of that case arose before issuance of the

revenue procedure in 2000. While the EAT owned the property all benefits

and burdens ran to the Taxpayer. The EAT merely held title. The Court

allowed the exchange. The Court held that the EAT was not the Taxpayer's

agent and did not apply the benefits and burdens test as argued by the IRS.

You didn't hear much about it from us because we, and many others in our

industry, were skeptical about the decision. Could we immediately start

structuring reverse exchanges in this manner? We watched to see if the

IRS would appeal and they didn't.

The IRS has now issued an action on decision (AOD 2017-06)

stating that they will not follow court opinions which uphold a non-safe

harbor reverse exchange without regard to whether the EAT has benefits

and burdens of ownership.

Kelci Paiva