Bartell and the Expansion of Facilitated Exchanges
6 Pages Posted: 26 Jan 2017
Date Written: January 25, 2017
The Tax Court recently granted section 1031 nonrecognition to a title-parking reverse improvements exchange. The transaction occurred before the publication of Rev. Proc. 2000-27, so it was a non-safe-harbor arrangement, and it would have failed to satisfy the safe harbor because the facilitator held title for more than the 180 days allowed for in the safe harbor. The ruling surprised many section 1031 practitioners because it did not consider whether the facilitator had the benefits and burdens of the replacement property while it held title to it. Despite the presence of facts that indicated the exchanger acquired the benefits and burdens at the time the facilitator took title to the replacement property, the Tax Court applied a formalistic view of tax ownership to hold that the facilitator was the tax owner because it was hired to facilitate the exchange and held legal title to the property. This case becomes another in a long line of cases that have applied a formalistic view of tax law to section 1031 exchanges. Even though the ruling surprised many members of the section 1031 industry, it does reflect the Tax Court’s interpretation of the tax ownership in the section 1031 context.
Keywords: Section 1031 exchange, improvements exchange, Rev. Proc. 2000-37, Rev. Proc. 2004-51, section 1031 reverse exchange, title-parking exchange
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