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IRS
Modifies Reverse Exchange Ruling...
In the past month (July 2004),
the IRS has issued a ruling (Rev.
Proc. 2004-51) intended to clarify
the rules about 'reverse' or 'parking'
style property exchanges. The
new ruling makes it clear that
an exchanger cannot use a reverse
exchange parking procedure to
exchange into property the exchanger
already owns.
A
previous IRS ruling (Rev. Proc.
2000-37), issued in 2000, outlines
a procedure for reverse exchanges.
In a reverse exchange, the Qualified
Intermediary usually sets up an
"accommodation titleholder"
entity to purchase and "park"
property that will be used for
an exchange. This structure is
useful when an exchanger needs
to buy new property before selling
their 'old' exchange property,
or to use exchange proceeds to
build improvements on the new
property.
Apparently,
some exchangers were using the
reverse exchange structure to
transfer property they already
own to their Q.I. to park, and
then re-acquiring that same property
in the exchange. With this new
ruling, the IRS has modified the
reverse exchange procedure to
forbid such an exchange. Specifically,
the reverse exchange procedure
is now modified so that it does
not apply to any property owned
by the exchanger within 180 days
prior to the exchange.
--The
Experts
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