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Safe Harbor

A safe harbor generally refers to a fact situation where under traditional tax or legal principles the proposed transaction, or part of a transaction, would be prohibited.  If an otherwise prohibited transaction can be structured pursuant to an IRS promulgated safe harbor, the IRS agrees not to challenge the structure as to form.

Safe Harbors

Certain provisions under the deferred exchange regulations giving the Exchanger protection from liability or penalty if followed precisely.

Same Taxpayer Requirement

This refers to the IRS requirement that the same taxpayer who owns and sells the relinquished property be the taxpayer who acquires the replacement property.  Some exceptions exist such as a person or entity who owns the relinquished property and a single member new limited liability company whose single member is the same entity that owns the relinquished property.

Section 179 Expense

Additional depreciation expensing allowing taxpayers to deduct some or all of the cost of qualifying property.  The amount of the deduction is subject to maximum annual limitations, taxable income limitations, and other limitations related to the value of the qualifying property.

Seller

Individual or entity that owns replacement property desired by the taxpayer.

Simultaneous Exchange

A concurrent exchange wherein the taxpayer disposes of the relinquished property and immediately receives the replacement property. Often conducted as a direct swap between two parties exchanging similar properties.

Single Member LLC Property Holding

Generally IRS rules require that the taxpayer who owns the relinquished property be the same taxpayer who owns the replacement property.  However, for tax purposes, single member LLCs are disregarded and treated as owned by the single member.  As a result a taxpayer who holds relinquished property in the name of a taxpayer can acquire the replacement property in a new LLC so long as the single member of the new LLC is either the individual who is member of the old LLC or the old LLC itself.

Special Depreciation

A one-time “bonus” depreciation allowance claimed against the starting Tax Basis of qualifying property.  Eligible to be claimed in the year the eligible property is placed in service, the allowance is an additional deduction computed after any Section 179 expense (if applicable) and before any MACRS depreciation deductions are calculated.

Special Member

This term refers to a person or entity that is inserted into a limited liability company operating company for the sole purpose of making it not possible for the LLC to declare bankruptcy.  This is often a lender requirement in connection with large borrowing transactions to avoid the difficulties of the lender, as a secured party, getting the property out of the bankruptcy proceeding.  The special member has no ownership interest in the property held in the LLC.  This same role is sometimes structured as that of an Independent Director or an Independent Manager.

Special Purpose Entity

In the context of a reverse exchange and other property parking arrangements, it is commonplace for the Exchange Accommodation Titleholder to require that each parked property be held in a limited liability company whose only activity is holding title to the particular parcel of land.  This way any liabilities that might affect the LLC are insulated in the LLC and do not spill over into other LLCs holding title to property held on behalf of other clients.

Starker Trust

The landmark legal decision of T.J. Starker v. U.S., 602 F. 2d 1341 (9th Cir. 1979) was significant in the development of the 1031 tax exchange rules. In this case the Ninth Circuit Court held that non-simultaneous 1031 exchanges were permissible and set the precedent for the current 180 day non-simultaneous, delayed tax-deferred like-kind exchange transactions.  Also referred to as a Starker Exchange.

Step Transaction

The step transaction doctrine in tax law holds that a series of steps, which when taken individually are without substance, may be regarded as a whole, with the substance of the transaction taking precedence over its form.

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