<p><strong>The Problem</strong><br />
William Smith purchased The Imperial Apartments in 1998 for $1.5M and he's been taking approximately $50,000 in depreciation deductions against the property each year (27.5 year MACRS residential rental property). He sold the building in February 2008 for $2.5M.</p>

<p>At the time of sale, his tax basis in the property was $1M. He purchased another apartment building in July, paying $3.25M. The new building is also 27.5 year MACRS residential rental property and is depreciated for tax purposes from the time of acquisition. Smith's 2008 tax consequences are significant.<br />
The tax gain recognized on the sale of the apartment building is $1.5M ($2.5M sale price - $1M adjusted tax basis = $1.5M), making his total tax $350,000.</p>

<p>• Federal Long-term Capital gains Tax: $1M appreciation x 15% = $150,000<br />
• Tax Attributable to Unrecaptured Section 1250 gain: $500,000 depreciation x 25% = $125,000<br />
• State/Local Tax (assumes 5% state tax rate): $1.5M tax gain x 5% = $75,000</p>

<p><strong>The Accruit Solution</strong><br />
Working with Accruit, Smith structures the sale of The Imperial as a §1031 single exchange, letting him defer this tax debt indefinitely.</p>

<p><strong>The Results</strong><br />
After executing an LKE, the recognized tax gain on the sale of The Imperial is $0. The benefit to Smith is the deferral of $1.5M of tax gain, resulting in a total tax savings of $350,000 in the year of sale.</p>

<p>* This case is based on a typical real estate exchange scenario.</p>

<p><strong>Why put a tax-deferral program in place when taxes are low?</strong><br />
<br />
Lessors and other savvy owners of business assets understand the financial benefits of a well-managed, programmatic 1031 Like-Kind Exchange (LKE) system. But "bonus depreciation," a currently&nbsp;low capital gains tax rate, a reduced effective overall tax rate resulting from reduced corporate profits, and the prospect of increasing tax rates in the future are all causing asset owners to question whether a 1031 LKE program makes sense for them at this time. The simple answer - regardless of current taxable status - is probably a resounding "<em>yes.</em>"</p>

<p><strong>Bonus depreciation is intended to provide additional incentive for investment in capital assets</strong>, just as the original <a href="http://www.1031.org/about1031/faq.htm&quot; target="_blank">Section 1031</a> provisions were intended to do when they were instituted in the 1920s. These are effectively complimentary incentives, not competing ones. Bonus depreciation, by its very nature, allows the owner's tax basis to be written down more aggressively, meaning that the "gap" between fair market value and depreciated basis grows more quickly. This gap is the taxable income an asset owner realizes when the asset is sold. Consequently, while the owner realizes a current tax benefit from the acceleration of depreciation, upon sale of that asset the "benefit" is partially repaid through tax on the "gain" if the sale price exceeds the depreciated basis - unless, of course, the owner replaces that asset with a like-kind asset, and defers the tax through a 1031 exchange.</p>

<p><strong>Another feature of the 1031 LKE allows for "step-in-the-shoes" depreciation</strong>, meaning the &nbsp;replacement asset enjoys the carry-over basis, effectively deferring the tax and leaving the cash &nbsp;available to the owner for purchase of the replacement asset. Fleet owners, lessors with a &nbsp;portfolio of assets, and companies constantly replacing capital assets used in their business can &nbsp;enjoy both the accelerated depreciation and the LKE benefits that convert tax liability to cash &nbsp;for investment.</p>

<p><strong>But what if the owner's tax rate is lower today than it is expected to be in the future?</strong> Does it make sense to pay the tax today instead of deferring into a higher tax rate environment?</p>

<p>This question can be answered theoretically, but working with an LKE expert to determine the specifics of each situation is advisable. In general, however, deferring the tax today by replacing the sold asset with a like-kind asset through a 1031 exchange, generates a higher financial return. One of the basic tenets of the US leasing industry, where nearly $650 billion of assets are leased and financed annually, illustrates that a dollar of tax paid today is more expensive than a dollar of tax paid "tomorrow." And unless the taxpayer plans to liquidate or go out of business, the opportunity to employ successive LKE's effectively allows an indefinite deferral of the tax liability for so long as replacement assets are being acquired.</p>

<p><strong>Regardless of the amount of deferral, any amount not paid in current taxes is, effectively, another source of cash. </strong>At a time when credit tightening, widening spreads, and increasingly-burdensome covenants and conditions characterize the capital markets, a careful cost-of-capital analysis will illustrate another real benefit of an LKE. Some owners measure the value of their LKE not as a tax deferral, but by its impact on their real cost of funds - the avoided cost of issuing debt or equity is significant, and by preserving the cash that otherwise leaves the company in the form of taxes paid, owners can re-deploy that cash to acquire replacement assets at a lower effective cost. Lower effective cost of assets then translates into greater operating efficiencies, which improves margins and profitability or makes the enterprise more competitive in the market. Either way, tapping the cash "hidden" in assets being sold and replaced is by all measures a good thing.</p>

<p>Finally, there's considerable value in <strong>putting in place an asset management process</strong> to track multiple depreciation streams on a single asset; match assets sold and acquired to optimize the like-kind opportunities; compare high-tax-basis assets with lower-basis assets when deciding which to sell (to optimize after-tax proceeds) - the process itself can help make an enterprise more efficient. Designed to optimize the LKE deferral, a system that also provides asset management information can be a valuable differentiator for day-to-day operations.</p>

<p><strong>So for those business asset owners who think the current tax environment may not be the right time to put in place a comprehensive, programmatic 1031 LKE process supported by systems and professionals, there may actually never be a better time.</strong> Ski slope operators use the time when there's no snow on the slopes to do the sub-surface and trail maintenance that will make their revenue season better. Fire marshals conduct their safety inspections and recommend improvements when buildings are not on fire. Farmers don't wait for the infestation to protect crops from pests. And taxpayers should seize the opportunity of putting systems in place even when the immediate impact may not be as great as they should expect it will one day be.</p>

<p>Recently, I came across an article written by Hal Vandiver for the Material Handling Industry of America regarding the <a href="http://www.mhia.org/news/industry/8505/economic-recovery-package-extend…; target="_blank">current Economic Stimulus Package and its impact on asset-owning businesses</a>. Mr. Vandiver described the initial benefit of this measure very well, including some mathematical analysis of asset purchases that occur in 2008 or 2009. Put simply, the continuation of Bonus Depreciation and increased Section 179 deductions as economic stimulation have a significant impact for companies able to take advantage of these measures. That said, there is a hangover looming in the distance of which these companies should be aware. That hangover is "depreciation recapture" caused by an artificially lower basis than would normally apply to these assets. Clearly, these stimulation measures are a double-edged sword, in the form of immediate increased depreciation expense, yet an artificially lower basis (therefore higher taxes) if these assets are sold before the end of their MACRS recovery lives.</p>

<p>Having myself recently written an article comparing the American Recovery and Reinvestment Act of 2008 to 1031 Exchanges, I thought perhaps an extension of the math used by Mr. Vandiver to include a look at the remaining basis of these assets would demonstrate depreciation recapture and connect the dots between these active economic stimulation measures and Section 1031 Exchanges.</p>

<p>What follows is an analysis outlining the benefits of Section 179, Bonus Depreciation and 1031 Exchanges for MACRS 5-year assets (Mr. Vandiver reviewed 7-year assets; however the principles are the same, and the application of 5-year recovery periods is more common for transportation assets, equipment, aircraft, information systems and many other assets). For calculation of depreciation recapture, I have assumed an 80% residual value for assets sold in year 2 of their recovery periods, and a blended income tax rate of 37%. To understand the implications for any transaction you are contemplating for your business, be sure to contact your tax advisor.</p>

<p><strong><em>SCENARIO 1: BASELINE - STANDARD DEPRECIATION</em></strong> (pre and post 2008-2009 tax years)</p>

<p>New Machine Purchase - $100,000</p>

<p>Standard MACRS Depreciation (20%) - $20,000</p>

<p>Asset Basis after 1^st Year (includes ½ year of 2^nd year depreciation*) - $64,000</p>

<p>Selling Price in 2^nd Year - $80,000</p>

<p>Gain on Sale - $16,000</p>

<p>Depreciation Recapture (37% Income Tax on Gain) - $5,920</p>

<p><strong><em>SCENARIO 2: BASELINE WITH BONUS DEPRECIATION</em></strong> (2008-2009 tax years)</p>

<p>New Machine Purchase - $100,000</p>

<p>1^st Year Bonus Depreciation (50%) - $50,000</p>

<p>PLUS Standard MACRS Depreciation on Remaining Basis (20% * $50k) - $10,000</p>

<p>Asset Basis after 1^st Year (includes ½ year of 2^nd year depreciation*) - $32,000</p>

<p>Selling Price in 2^nd Year - $80,000</p>

<p>Gain on Sale - $48,000</p>

<p>Depreciation Recapture (37% Income Tax on Gain) - $17,760</p>

<p><strong><em>SCENARIO 3: BASELINE WITH STANDARD SECTION 179 DEDUCTION</em></strong> (pre and post 2008-2009 tax years)</p>

<p>New Machine Purchase - $400,000</p>

<p>Section 179 Deduction - $128,000</p>

<p>Standard MACRS Depreciation (20% * $272k) - $54,400</p>

<p>Asset Basis after 1^st Year (includes ½ year of 2^nd year depreciation*) - $174,080</p>

<p>Selling Price in 2^nd Year - $320,000</p>

<p>Gain on Sale - $135,920</p>

<p>Depreciation Recapture (37% Income Tax on Gain) - $50,290</p>

<p><strong><em>SCENARIO 4: BASELINE WITH BONUS AND INCREASED SECTION 179 DEDUCTION</em></strong> (2008-2009 tax years)</p>

<p>New Machine Purchase - $400,000</p>

<p>Section 179 Deduction - $250,000</p>

<p>PLUS Bonus Depreciation (50% * $150k) - $75,000</p>

<p>PLUS Standard MACRS Depreciation (20% * $75k) - $15,000</p>

<p>Asset Basis after 1^st Year (includes ½ year of 2^nd year depreciation*) - $48,000</p>

<p>Selling Price in 2^nd Year - $320,000</p>

<p>Gain on Sale - $272,000</p>

<p>Depreciation Recapture (37% Income Tax on Gain) - $100,640</p>

<p>For each of the above scenarios, the application of Section 1031 Exchange treatment would defer the recognition of gain on sale; therefore the depreciation recapture problem is removed. Assets that take advantage of either of these economic stimulation measures and are sold at any point before the end of their recovery lives will face artificially lower bases, and therefore suffer from larger depreciation recovery issues in the form of higher taxes. Fortunately, these inflated tax payments can be postponed through the utilization of 1031 Exchanges.</p>

<p>While this analysis is intended to demonstrate the depreciation recapture issue, rather than the complete benefit of Section 1031 Exchanges, it is worth noting that at any point during or after an asset's MACRS recovery life, Section 1031 Exchanges can have a significant bottom-line impact until such time as their market-driven residual values become insignificant.</p>

<p><em>*Assuming the Midyear Convention is utilized for determining remaining basis in these assets, and that the asset has not reached the end of its MACRS depreciable life, these assets will receive an additional depreciation allowance equal to ½ of the allowable depreciation for the year in which they are sold. The MACRS schedule allows a half year of depreciation in the first and last recovery years. Consult your tax advisor to understand the Convention required for your asset types and placed in service dates (i.e. if more than 40% of the MACRS property is placed in service in the last quarter, the Midquarter Convention must be used).</em></p>

<p><em>__________</em></p>

<p><em>Thanks to Joe Lane for pointing me to this article.</em></p>

<p>While on the campaign trail, Barack Obama made greening America's infrastructure a huge priority for his administration. As noted in the <em>Los Angeles Times</em>, Obama planned</p>

<blockquote>
<p>to spend $150 billion over the next decade to promote energy from the sun, wind and other renewable sources as well as energy conservation. Plans include raising vehicle fuel-economy standards and subsidizing consumer purchases of plug-in hybrids. Obama wants to weatherize 1 million homes annually and upgrade the nation's creaky electrical grid. His team has talked of providing tax credits and loan guarantees to clean-energy companies.</p>

<p>His goals: create 5 million new jobs repowering America over 10 years; assert U.S. leadership on global climate change; and wean the U.S. from its dependence on imported petroleum.</p>
</blockquote>

<p><a href="http://www.newscientist.com/article/dn16905-congress-delays-obamas-gree…; target="_blank">He's currently battling Congress</a> for the appropriations required to turn his vision into reality, and the resistance from Capitol Hill raises once again a question that's been bouncing around the office here for the last six months: <strong><em>why not revise the tax code to make wind, hydroelectric, solar and other renewable technologies "like-kind" with traditional fossil technologies?</em></strong> This would allow energy companies that wanted to transition into green energy to employ Section 1031 Like-Kind Exchanges, thereby speeding the switch-over considerably.</p>

<p>Some quick background. At present 1031 Exchanges can only be performed on assets that are either "like-kind" or "like-class." Whether assets are "like-class" is determined by the General Asset Class (GAC) or North American Industry Classification System (NAICS) codes. If the assets do not fall within the same class, they can still be considered like-kind by the IRS and exchanged. However, the exchange will be outside the like-class safe harbor and the determination of whether the assets are like-kind will need to focus on the nature or character of the property.</p>

<p><a href="https://www.census.gov/naics/&quot; target="_blank">The NAICS codes that are relevant for this discussion are found in sections 31-33</a>. Code 333132 defines Oil and Gas Field Machinery and Equipment Manufacturing while code 3336 covers Engine, Turbine, and Power Transmission Equipment Manufacturing. As such, the Internal Revenue Code would not allow an LKE between the two, even though both are used for the same purpose.</p>

<h4>The ABC Energy Case</h4>

<p>America's energy industries understand the need to green their operations. According to the American Petroleum Institute, US oil and natural gas industry companies are investing more than all of private industry and the federal government combined in new energy technologies to meet future energy needs.</p>

<ul>
<li>Oil and Gas Companies - $121.3B</li>
<li>Other Private - $58.2B</li>
<li>Federal Government - $8.2B</li>
</ul>

<p>On carbon mitigation alone, oil and gas companies outspend the federal government by nearly three times</p>

<ul>
<li>Oil and Gas Companies - $42B</li>
<li>Federal Govt - $15B</li>
</ul>

<p>With this in mind, let's illustrate the case of ABC Energy. Imagine that ABC is a large firm (market cap of $175 billion) that currently focuses on oil and natural gas exploration, development, production and distribution. Like every other energy company in America they can see the writing on the wall and realize that if they're to be successful in the long term that they must evolve from an <em>oil</em> company into a full-spectrum <em>energy</em> company. As a result, they're already investing significantly in renewables.</p>

<p>They believe that this evolution will happen over X years at a cost of Y. But what are the values for X and Y? There's going to be tremendous political (and consumer) pressure to shorten X, but these are balanced against the obvious business pressures to mitigate Y. Part of the transition will be accomplished organically, as old assets are retired, and tax credits can also ease the burden some. Of course, in the current political climate, most legislators will be eager to steer clear of "tax breaks for Big Oil" stories.</p>

<p>The upshot is that Y will remain too high to spur a quick transition.</p>

<p><strong>Now, let's consider what might happen if the tax reform proposed here were enacted.</strong> (In a good-faith attempt to make the scenario as plausible as possible we're going to use what we believe to be very conservative numbers.)</p>

<p>At the end of 2008 ABC reported $60B in Property, Plant and Equipment assets. Let's say that half of this number would potentially be eligible for 1031 exchange treatment. Senior leadership at ABC now has a new path toward sustainable production that didn't exist before, and since it's already investing in renewables and green tech research, it makes good business sense to begin using Like-Kind Exchanges to accelerate its transition. Over the span of 10 years (let's use something close to the timeframe imagined by President Obama and Al Gore's <a href="http://www.wecansolveit.org/">We initiative</a> , although there's every reason to think the pace can be sped up) ABC aggressively begins exchanging fossil assets. When you combine federal and state rates the total tax bill on the sale of existing assets would be approximately 40%, which means they're able to defer around $12B, which they immediately reinvest in their new sustainable energy production assets - wind, solar, etc.</p>

<p>ABC is one company, and while they're big they're hardly the largest (they're roughly half the size of ExxonMobil). On a revenue basis, ABC represents a little over 2% of the US oil and gas sector's revenues for 2008, so if we assume that its profile is more or less average by industry standards, <em><strong>this proposal could potentially unleash more than $600 billion for green energy development</strong></em>.</p>

<p>At this point, let's remember two things. First, we're aiming low. Second, at this point we're still only talking about the oil and gas sector - to get the full impact of this proposal you'd also have to factor in a similar transition by coal companies.</p>

<p>We're still trying to nail down the math on the scenario presented above, but we feel comfortable that what is described is in the right ballpark, and are continuing to work on firming up the actual industry numbers. Thanks for tolerating the fuzzy math, and if you're able to help us tighten up the scenario, please let us know.</p>

<h4>What Are the Potential Objections?</h4>

<p>In imagining how we might get an idea implemented, we have to consider what barriers would stand in the way. A few objections have occurred to us, but so far there are very good answers to each. Let's take them one at a time.</p>

<p><strong>1: Such a change would be very difficult to implement.</strong> Not necessarily. The standard route for amending the tax code runs through Congress, obviously, and that's always a complex process. However, the IRS has tools at its disposal that could potentially expedite fossil-to-green exchanges, at least in the short term. One is called a Private Letter Ruling (PLR). "The IRS private letter ruling is applicable to that tax situation and that taxpayer only." However, PLRs are often treated as precedent, and there's no reason to think that one couldn't be used to signal to energy firms that the agency is ready to accept fossil-to-green exchanges as eligible for 1031 by virtue of "same use" status. The second (and more powerful) approach could involve the use of a <a href="http://legal-dictionary.thefreedictionary.com/revenue+ruling&quot; target="_blank">Revenue Ruling</a>.</p>

<p><strong>2: What is proposed can be done already.</strong> This is true in principle. ABC could, if its CPAs and attorneys agreed that it was a defensible move, go ahead and execute such an exchange and then make their case before the IRS on audit. However, this is risky - they could potentially be exposed to the full tax bill plus penalties if they failed to convince the IRS. If companies have done this in the past (or are doing it currently) we're not aware of it, and at the very least it's likely that the risk noted here would serve as a significant barrier for any energy company.</p>

<p><strong>3: There will be major public and political resistance to "tax breaks for oil companies."</strong> While there certainly might be such a response, this program is very explicitly <em>not</em> a tax break for oil companies. Three reasons:</p>

<ul>
<li>They can perform 1031 exchanges within NAICS class now. This means that if there is a "tax break" involved, it exists already, and worse, it's an incentive to <em>continue reliance on fossil fuel resources</em>, which is the opposite of the government's stated goal.</li>
<li>Existing tax incentive proposals do come with direct budget implications - federal monies are being shifted to energy enterprises. But this proposal has no such impact. There are no new tax revenues that would be realized in the absence of the proposal - that is, no proposal, business as usual.</li>
<li>We're not talking about a permanent revenue transfer. If the proposal were adopted these taxes would be <em>deferred</em>, not forgiven.</li>
</ul>

<p>To this equation add add the tax revenue implications associated with the creation of all those green collar jobs and the ripple that a half-trillion dollar development spree would set off in support and peripheral markets.</p>

<p>As a result, this seems like an idea that would be a win for both major parties (and even the Libertarians and Greens). Objections might be voiced, but at this point it seems like there are solid answers to them.</p>

<p>There are obviously a number of gaps that need filling in, and there may well be a strong argument against that hasn't occurred to us yet. Hopefully our readers can help us vet the idea and decide whether it's something that needs to be pursued more aggressively.</p>

<p>If you missed last week's <em>Wall Street Journal</em> feature entitled <a href="http://online.wsj.com/article/SB123739309941072501.html&quot; target="_blank">"Greener and Cheaper,"</a> have a look - it could change your business. Authored by Dr. Alan Robinson (Isenberg School of Management, University of Massachusetts) and Dr. Dean Schroeder (College of Business Administration, Valparaiso University), the article examines Subaru of Indiana Automotive Inc., which has established a blueprint for making sustainability work as business practice. They outline a six-step roadmap and conclude that despite what many companies think -- that reducing their environmental impact is a nice idea, but impractical because of the cost -- businesses <em>can</em> go green and <em>lower</em> costs at the same time.</p>

<p>We've talked elsewhere about how businesses in all industries can leverage 1031 Like-Kind Exchanges (LKEs) to help them green their operations. The situation goes something like this:</p>

<ul>
<li>Up until the last couple of years "green" and "sustainability" were words primarily associated with the environmental movement. Now, though, I think most companies have come to understand that greening is a business imperative. It makes financial sense and it's an inevitability - a "when," not an "if."</li>
<li>Greener technologies - whether we're talking about fleet, HVAC, supply chain processes, etc. - are money savers. You use 40% less energy, you save 40% on your energy bill.</li>
<li>However, you have to invest in the new infrastructure, and that costs money. For a lot of businesses today it can be hard to think about cost savings down the line when you're cash-strapped right now.</li>
</ul>

<p>The Accruit answer:</p>

<ul>
<li>There are local, state and federal tax incentives than your business can take advantage of now (how much benefit you can derive depends on where you're located);</li>
<li>the Obama administration makes clear that there's more infrastructure funding on the way; and</li>
<li>you can then supplement these funds by using LKEs to defer the taxes you'd have otherwise had to pay when selling the old equipment.</li>
<li>Between operational savings, 1031 deferrals and tax incentives, all of a sudden making the transition sooner rather than later begins to make sense.</li>
</ul>

<p>Still, I understand that this isn't the kind of one-shot panacea that a lot of businesses might prefer. The solution is incremental and draws from multiple sources, which means that Total Cost of Ownership (TCO) and Return on Investment (ROI) propositions can be trickier to articulate.</p>

<p><strong>Robinson and Schroeder's Subaru Indiana analysis, though, makes the case for acting sooner rather than later even stronger.</strong> It outlines a proven process, provides concrete advice and illustrates the company's success with solid financial data, all of which suggests a clear course of action: begin greening your business <em>now</em>.</p>

<p>Depending on your business, 1031 Exchanges may play a huge role in your drive to sustainability. Or it may play a small role (or none at all). Either way, the <em>WSJ</em> analysis shows how the math tips more in your favor than you may have realized once you factor in <em>all</em> the variables.</p>

<ul>
<li><em>Rep. Joel Judd applauded for defending the interests of consumers and businesses performing Section 1031 exchanges</em></li>
<li><em>..."no client should have reason to fear doing a Like Kind-Exchange."</em></li>
</ul>

<p><strong>March 26, 2009</strong></p>

<p>(Denver) Colorado House Bill 09-1254, sponsored by State Representative Joel Judd and State Senator Ted Harvey, has been unanimously passed by the 67^th General Assembly of the State of Colorado. This legislation is designed to create consumer protections relating to <a href="http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031&quot; target="_blank">Section 1031 Like-Kind Exchanges</a> facilitated by Qualified Intermediaries (QI) and Exchange Accommodation Titleholders, otherwise known as Exchange Facilitators.</p>
<!--break-->

<p>For the past two years a group of QIs committed to responsible business practice has served as a resource team for legislators promoting this bill. The team, comprised of members of the Federation of Exchange Accommodators (FEA), included committee leader Brent Abrahm of Accruit, Mary Lou Schwab of Bankers Escrow; Paul Holloway of Land Title Exchange Corporation; David Wright of 1031 Corporation Exchange Professionals; Scott Saunders of Asset Preservation; Suzanne Goldstein Baker of Investment Property Exchange Services, Inc. (IPX1031); and Max Hansen of American Equity Exchange, Inc.&nbsp; Abrahm, Baker, and Hansen also serve on the FEA's Board of Directors.</p>

<p>Abrahm, CEO of Denver-based Accruit, LLC, explains that "the like-kind exchange (LKE) was added to the Internal Revenue Code in 1921 to promote business reinvestment in our economy. It is important, especially during difficult economic times like the present, that this ultimate stimulus tool be governed in the best interests of the consumers and businesses that utilize it. We applaud Representative Judd and Senator Harvey for supporting legislation that protects the integrity of the services provided by QIs doing business in Colorado. It's been an honor to be a resource for this landmark legislation, which will ensure appropriate business standards for all QIs in the state."</p>

<p>Jason Hopfer of JLH Public Affairs said, "It's a pleasure to assist these industry leaders, through the FEA, in their quest to protect and preserve this tax planning tool and the businesses in Colorado that it serves."</p>

<p>The FEA, which represents Qualified Intermediaries nationwide, requires that its members follow a strict code of ethics consistent with the legislation presented by Representative Judd. Billions of dollars in like-kind exchanges for real estate and other business assets are transacted each year, and House Bill 09-1254 will ensure that all Colorado Exchange Facilitators follow secure banking procedures that provide sufficient liquidity of funds to meet their obligations to their clients.</p>

<p>"The FEA Code of Ethics very specifically provides every member organization a set of standards and business processes to safely handle assets and business funds," says Hugh Pollard, President of the FEA. "With proper due diligence, <a name="OLE_LINK2"></a><a name="OLE_LINK1">no client should have reason to fear doing an LKE</a>. Each client should ask detailed and specific questions about how their money will be invested and they should make sure that their QI&nbsp;provides proper financial assurances."</p>

<h3>About the Federation of Exchange Accommodators</h3>

<p>The Federation of Exchange Accommodators (FEA) is the only national trade organization formed to represent qualified intermediaries (QIs), their primary legal/tax advisors and affiliates who are directly involved in Section 1031 Exchanges. Formed in 1989, the FEA was organized to promote the discussion of ideas and innovations in the industry, to establish and promote ethical standards of conduct for QIs, to offer education to both the exchange industry and the general public, and to work toward the development of uniformity of practice and terminology within the exchange profession. The FEA also provides timely input and updates on pending State and Federal legislation, Internal Revenue Service and Treasury Rulings, and Court Decisions. Parties with questions about Section 1031 and its operating principles are encouraged to contact the FEA at 215.564.3484 or visit the Web site at <a href="http://www.1031.org/&quot; target="_blank">www.1031.org</a>.</p&gt;