Rev. Proc. 2000-37 (Reverse Exchange Safe Harbor)

The revenue procedure filled a gap the 1991 regulations left open.

Section 1031(a)(3) and the deferred exchange regulations deal with selling first and buying later. Section 2.04 of Rev. Proc. 2000-37 records that the preamble to those regulations said they do not apply to reverse exchanges, and that Treasury would keep studying them.

Taxpayers meanwhile used parking transactions with accommodation parties who were supposed to carry enough benefits and burdens of ownership to be treated as owners. The revenue procedure gave them a workable route where the taxpayer has a genuine intent to exchange and finishes within a short time, by treating the accommodation party as owner if the property is held in a qualified exchange accommodation arrangement.

Its main terms fit on one page.

Section 4.02 sets the conditions: an independent titleholder, a written agreement within five business days, identification of the relinquished property within 45 days, and transfer out within 180 days. Section 4.03 lists permitted side arrangements, including loans and guarantees from you, a lease to you, and puts and calls for up to 185 days.

Hypothetical: a titleholder takes title to a $3,000,000 retail building for you on June 1. You identify your apartment building by July 16 and sell it on October 1, and the titleholder transfers the retail building to you through your intermediary the same day, day 122. The exchange fits inside the 180 days ending November 28. Check every date with your intermediary and CPA.

Section 3.02 says parking can be done outside the safe harbor, with no inference either way. Section 3.04 says that if the conditions are not met, ownership is decided without regard to the revenue procedure.

Rev. Proc. 2004-51 closed the swap-with-yourself reading.

Section 2.04 of Rev. Proc. 2004-51 says some taxpayers read the safe harbor to allow transferring their own property to a titleholder and receiving it back as replacement property. Section 2.05 cites DeCleene v. Commissioner, 115 T.C. 457 (2000), for the rule that exchanging real estate you own for improvements on land you already own is not a like-kind exchange.

Section 2.06 of the 2004 procedure adds that Treasury and the IRS were still studying parking in which a person related to you leases land to an accommodation party that builds improvements and transfers the improved leasehold to you. That pattern was left under study.

It added section 4.05: no safe harbor for replacement property you owned within 180 days before the titleholder took title, for transfers on or after July 20, 2004. That is the rule behind the answer on building on land you already own. For planning, see the reverse exchange guide and parking arrangement.