Todd Keator Quoted in Law360 on Lingering Issues in Like-Kind Exchange Transactions

“3 Lingering Issues In Like-Kind Exchange Transactions”

While IRS regulations have provided some clarity on like-kind exchanges, tax practitioners have questions on issues the agency has remained silent about, such as built-to-suit projects and drop-and-swaps, and are wondering whether President-elect Joe Biden will support the transactions.

…In this forward 1031 exchange, the mechanics involve an owner selling the real property, the money goes into a qualified intermediary account and the investor has 180 days to spend that money on one of the identified replacement properties, according to Todd D. Keator, the tax practice leader at Thompson & Knight LLP.

Reverse exchange procedures are laid out in Notice 2000-37, issued about 20 years ago, under which instead of first selling property, then putting money in the intermediary account and buying later, someone buys property first, has 45 days to identify currently owned property and 180 days to sell it, he said. But 180 days is usually too short of a time frame for most commercial transactions that involve construction, Keator said.

“The statute itself allows 180 days for forward but says absolutely nothing about reverse exchanges,” he said. “So there really is no statutory authority on reverses and there’s no regulations [on the 180-day time frame] either.”

A reverse 1031 exchange takes place with an intermediary known as an exchange accommodation titleholder, or EAT, and creates an agreement called a qualified exchange accommodation arrangement, under which the EAT will go out and purchase a replacement property on behalf of the investor and will hold the title to the property until the investor acquires funding to purchase it, Keator said.