Library items related to personal property exchanges.

Tax Deferred Exchanges

It happens all the time. A call comes in from a knowledgeable accountant: “We have a client who is replacing equipment and wants to defer paying taxes. We need some help with an IRC section 1031 exchange.” What’s being referred to here is a tax deferred exchange, which essentially gives taxpayers the right to transfer value from one business or investment property to another one of “like kind” without paying taxes on any gain in the process.

Rev. Proc. 2003-39: Like-Kind Exchange Programs

Safe harbor rules are provided under section 1031 of the Code, which allows for deferral of gain realized on a like-kind exchange of property, with respect to programs involving ongoing exchanges of tangible personal property using a single intermediary (“ These types of exchanges are available to taxpayers who have an ongoing program of 100 or more properties. This allows for efficiencies that are not present in normal single asset exchanges such as providing blanket assignments of contract rights to the qualified intermediary and only needing a single Master Exchange Agreement rather than one for each periodic trade. The guidance for this type of exchange can be found in Rev. Proc. 2009-39 and is used frequently by leasing companies and users of heavy duty machinery and equipment. LKE Programs ”). For purposes of this revenue procedure, an "LKE Program" is an ongoing program involving multiple exchanges of 100 or more properties. Although These types of exchanges are available to taxpayers who have an ongoing program of 100 or more properties. This allows for efficiencies that are not present in normal single asset exchanges such as providing blanket assignments of contract rights to the qualified intermediary and only needing a single Master Exchange Agreement rather than one for each periodic trade. The guidance for this type of exchange can be found in Rev. Proc. 2009-39 and is used frequently by leasing companies and users of heavy duty machinery and equipment. LKE Programs may differ in various ways, an LKE Program must have all of the following characteristics:

Rev. Proc. 2000-37: Reverse Exchanges

Since the promulgation of the final regulations under § 1.1031(k)-1, taxpayers have engaged in a wide variety of transactions, including “parking” transactions, to facilitate reverse like-kind exchanges. Parking transactions typically are designed to “park” the desired replacement property with an accommodation party until such time as the taxpayer arranges for the transfer of the relinquished property to the ultimate transferee in a simultaneous or deferred exchange. Once such a transfer is arranged, the taxpayer transfers the relinquished property to the accommodation party in exchange for the replacement property, and the accommodation party then transfers the relinquished property to the ultimate transferee.

Like-Kind Classification Codes

Depreciable tangible personal property is exchanged for property of a "like-kind" under section 1031 if the property is exchanged for property of a like-kind or like class. Depreciable tangible personal property is of a like class to other depreciable tangible personal property if the exchanged properties are either within the same General Asset Class or within the same Product Class. The attached document contains both the General Asset Class (GAC) and the ("NAICS" )The standard used by Federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy. NAICS was developed under the auspices of the Office of Management and Budget, and adopted in 1997 to replace the Standard Industrial Classification (SIC) system. It was developed jointly by the U.S. Economic Classification Policy Committee (ECPC), Statistics Canada, and Mexico's Instituto Nacional de Estadistica y Geografia , to allow for a high level of comparability in business statistics among the North American countries. The NAICS Manual uses a 6-digit product classification system to describe depreciable tangible personal property. For LKE purposes, property within a product class are considered to be like-kind. Copies of the NAICS Manual may be obtained from the National Technical Information Service, an agency of the U.S. Department of Commerce, and may be accessed on the internet. View complete NAICS Codes online: http://www.census.gov/epcd/www/naics.html North American Industry Classification System (NAICS) codes that are pertinent to tax-deferred personal property exchanges.

IRS Issues Long Awaited Reverse Exchange Rules

During the one-year period between the promulgation of the 1990 proposed exchange regulations and the issuance of the final regulations in April of 1991, the IRS solicited comments in regard to allowing pure reverse exchange transactions. A pure reverse exchange was understood to mean that the taxpayer would acquire the replacement property prior to the sale of the relinquished property. The final regulations ultimately failed to allow a safe harbor for such a reverse closing sequence.