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The client consistently
maintains a positive income position and, because of consistent
turn over in their rental fleet, is burdened with a substantial
tax liability on the sale of these assets.
The client's leadership was presented with a strategic acquisition
opportunity. Therefore an improved cash position became
very important in helping the organization meet its business
objectives. During this time, the Treasury Department released
further guidance on Internal Revenue Code 1031 and the client
read about the concept of repetitive Like-Kind Exchanges (LKE). By
adopting an LKE program, the client would realize an increase
of its available cash, rather than incurring more debt, in order
to complete the acquisition. But, after a thorough investigation,
the frustrating reality of adding head count and the complexity
involved to accomplish LKEs internally threatened cancellation
of the effort.
Working with their tax advisor, the client invited Accruit to evaluate
their current business processes, rental portfolio and circumstances
for implementing a repetitive Like-Kind Exchange solution. The
Accruit team, working with the client's tax advisor, completed
a detailed assessment and implemented an Like-Kind Exchange solution. Using
the Accruit proprietary systems and processes, the client monitored
their rental sales and purchase activity to qualify transactions
as "safe harbor" Like-Kind Exchanges. The resulting
program provided a full-service solution, including asset tracing,
LKE matching, an integrated Qualified Intermediary services and
banking & treasury
operations.
The decision was made to include only 50% of its rental fleet
in the Like-Kind Exchange program and after 6 months, the client
increased its cash position by $20m and realized a tax deferral
totaling $8m without adding extra staff. This program allowed
the company to maintain a favorable debt-to-cash ratio thereby
significantly reducing the financing necessary to complete the
pending acquisition. The cost for implementation was recaptured
after only 4 transactions, and the annuity value of the program
will substantially reduce the company’s tax burden indefinitely. Furthermore,
the Accruit Like-Kind Exchange solution will encourage strategic
asset management of its fleet to maximize rental profit and residual
value.
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