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Q: What’s
the difference between Accruit and a qualified intermediary?
A: Actually, Accruit’s services include many elements
of the QI function. However, our Exchange Manager takes them
to a new level by giving you end-to-end management of the process
to maximize your benefit and reduce your internal cost of completing
exchanges. This can save a tremendous amount of accounting and
tax preparation time.
Some things cannot be automated. Part of the QI function is
to receive, hold, and manage client funds. Accruit has the
financial depth, industry background, and on-the-ground team
needed for a full function QI service. We offer unsurpassed
technical solutions combined with premier QI capabilities.
As far as we know, no other QI comes close to offering the
same services.
Q: When does money go to the qualified
intermediary service?
A: Accruit handles this in different ways, depending on your
preferences and business requirements. Often, the best practice
is to have all asset sales run through Exchange Manager. The
purchaser pays the money to the QI account held for your benefit,
and this transaction is recorded in Exchange Manager. That money
can then be used to purchase property for a qualified exchange.
Sometimes more funds are needed for asset purchases than are
available in your account. You may transfer funds to the QI
account using a convenient Exchange Manager utility.
Q: Does Accruit’s
Exchange Manager actually fill out tax forms
automatically?
A: Not exactly, but it does provide all
the line-item information needed for your
tax forms and the required attachments.
Q: What is a
like-kind exchange (LKE)?
A: An LKE is a process by which a business
disposes of one asset, acquires another
similar asset, and defers income tax on
the transaction. Since your investment
is still in the same type of asset, Congress
has allowed deferral of gain on the exchange
since 1921. Section 1031(a) of the Internal
Revenue Code (from which the so-called "1031
exchange" gets its name) reads, in
part, as follows:
"No gain or loss shall be recognized on the exchange of property held
for productive use in a trade or business or for investment purposes if such
property is exchanged solely for property of a like-kind that is to be held
for either productive use in trade or business or investment purposes."
Q: What's the advantage
of doing like-kind exchanges electronically?
A: Most LKEs transacted today are done through
paper-based processes that require an inordinate
amount of time and attention.
- They are complex and confusing;
- Require the collection and preservation
of information that affects taxes;
- Force the manual matching of sales and purchases
of like-kind assets together;
- Modify your depreciation methods; and
- Fail if specific, critical deadlines are
not met.
In short, they are not worth the time, cost, or trouble if there
isn't a lot of money at stake. As a result, the majority of
LKEs transacted today are for high-value assets and real estate.
By contrast, electronic LKEs are particularly useful for exchanges
of assets with lower per-item value and higher frequency of sale
that necessitate an automated approach. This includes virtually
any item of equipment or other depreciable property that is routinely
bought and sold in the normal course of business.
Electronic LKEs instantly track the transaction process, issue
wiring instructions, provide alerts about critical time deadlines,
register the receipt and disbursement of funds, and assure a complete
record that satisfies the safe harbor guidelines under Internal
Revenue Code §1031.
Q: Is Accruit’s
process secure and safe?
A: We take security seriously. Accruit conducts
regular security audits and in-depth system reviews
to ensure that the system achieves the highest
security and reliability standards.
Q: What does
the qualified intermediary do with my money?
A: Your money held by our QI service is invested
conservatively in AAA-rated money market
accounts or other similar investments that
protect your principal.
Q: Does Accruit
give me reports on the funds I have deposited
with the qualified intermediary?
A: Exchange Manager shows you account statements
that are reconciled daily with the QI’s
bank account. You will be provided information
on funds received, funds not received to
date, cash disbursements, pending disbursements
and any other account activity.
Q: Are LKEs
approved by the IRS?
A: The origins of property exchanges go back
almost to the beginning of income taxation,
to 1921. In recent decades, various decisions
and rulings have successively reinforced
the validity of Like-Kind Exchanges and extended
their application to deferred exchanges (§1031)
and, during 2000, to reverse exchanges (buy
first, sell later (Rev. Proc. 2000-37)).
Like-Kind Exchanges are common in the real
estate industry, with the Federation of Exchange
Accommodators estimating that up to $100
billion in exchanges occur annually. Although
they have been less common for personal property,
they are nonetheless legitimate, with their
own complete set of rules.
Q: Are there
benefits other than tax deferral?
A: While Exchange Manager’s primary
purpose is handling LKEs, resulting in tax
deferrals, you will also be able to get detailed
asset tracking and depreciation calculations.
Q: Is this process
patented?
A: Accruit has applied for numerous patents
on its method of business and web-based approach
to like-kind exchanges.
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