<p>Excerpted from the <a href="https://www.bizjournals.com/denver/news/2017/11/01/viewpointbeware-chan… Business Journal</em>, "Beware changes in 'like-kind' transactions under proposed federal tax reform"</a>:</p>

<p><em>Rarely do the interests of small businesses owners and a broad range of local entrepreneurs agree with almost a century of federal income tax policy – especially when it results in billions of dollars in taxes being paid.</em></p>

<p><em>But luckily for the economy, they do.</em></p>

<p><em>The trouble is, this powerful economic driver is now in real danger as Congress and the Trump Administration grapple with the twin dilemmas of tax reform and a threadbare federal budget that would put such long-term investments and incentives at risk.</em></p>

<p><a href="https://www.bizjournals.com/denver/news/2017/11/01/viewpointbeware-chan…; target="_blank">Read Accruit CEO Brent Abrahm's op-ed at the <em>Denver Business Journal</em></a></p>

<p>The <a href="https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf&quot; target="_blank">new tax bill unveiled today by House Republicans</a> proposes to repeal like-kind exchanges for personal property. In its place, the bill provides for 100% expensing of property, however this provision is only temporary, sun-setting after five years. 100% expensing may be extended, as other unrelated provisions have in the past, but the uncertainty makes long-term planning difficult for businesses. &nbsp;</p>

<p>As I have argued for years on the Hill, like-kind exchanges are a matter of tax timing and not a permanent deferral of taxes They give businesses in need of cash flow the strategic ability to determine when it is best to recognize gain and pay taxes associated with the disposal of capital assets.&nbsp; &nbsp;</p>

<p>Should Congress repeal like-kind exchanges, and provide for 100% expensing for five years, what will your company’s financial position be by 2024?&nbsp; Tax obligations will be high (states are not&nbsp; likely to adopt 100% expensing), there is no offset from capital expenditures, and the cost of debt, assuming the trend continues, will slowly cripple economic gain realized in prior years.</p>

<p>As illustrated in this table, immediate expensing increases cash flow for only three years under the proposed outline.&nbsp; In the fourth year, companies will begin to recognize significant increases in tax obligations.&nbsp; Should like-kind exchanges also be repealed, studies show that business will begin to contract – not expand -- in an environment in which cash flow is restricted.</p>

<p><img alt="" src="/sites/default/files/files/immediate-expensing-5-years-vs-lke.jpg" style="width: 800px; height: 393px;" /></p>

<p><a href="https://www.usa.gov/elected-officials&quot; target="_blank">Let your state and federal representatives know that immediate expensing not a fair trade for repeal of like-kind exchanges</a>.&nbsp; Your company relies on clients’ access to low cost debt, the ability to exchange assets (allowable under IRC 1031 like-kind exchanges), and incentives to deal in the secondary and tertiary markets. 100% expensing most likely would not include used equipment.&nbsp; This is not the way to grow our economy.&nbsp;</p>

<p>With so many weather-related natural disasters occurring with seemingly increasing frequency, let’s take a look at how such disasters affect persons seeking to complete exchange transactions. While the safe harbor timelines for conventional forward exchanges and for reverse exchanges are strictly enforced, there is some relief afforded in the event of a federally declared disaster in the form of time granted. The applicability of a particular federally declared disaster can be found on the IRS website, which provides <a href="https://www.irs.gov/newsroom/tax-relief-in-disaster-situations&quot; target="_blank">news releases covering disaster events</a>.</p>

<p>An IRS publication, IRS Revenue Procedure 2007-56 Section 17, sets forth the rules surrounding such disasters as they apply to forward and reverse exchanges. This revenue procedure states that the last day of the 45-day identification period, the last day of the 180-day exchange period for forward exchanges and the beginning and end dates for a reverse exchange can be extended. More specifically, those dates are postponed to the later of (i) 120 days or (ii) the last day of the general disaster period authorized in the IRS News Release. The revenue procedure further provides that in no event may a postponement period extend beyond (i) the due date for filing the tax return for the year of the transfer or (ii) one year. As a practical matter, should the due date for filing the tax return cut the postponement period short, the filing of an extension would lengthen the date to the full time period.</p>

<p>The revenue procedure further provides that a taxpayer qualifies for postponement only if the relinquished property in a forward exchange or the subject property in a reverse exchange have been transferred prior to the federally declared disaster and the taxpayer is (i) an “affected taxpayer” as defined in the applicable IRS News Release or (ii) the taxpayer has difficulty meeting the deadlines for any of the following reasons:</p>

<ul>
<li>The relinquished or replacement property are located in a covered disaster area as provided in the IRS New Release;</li>
<li>The principal place of business of any party to the transaction (e.g. qualified intermediary, exchange accommodation titleholder, settlement attorney, title company, lending financial institution) is located in the covered disaster area;</li>
<li>Any party to the transaction is killed, injured or missing as a result of the disaster;</li>
<li>A document prepared in connection with the exchange or a relevant land record is destroyed, damaged or lost as a result of the disaster;</li>
<li>A lender decides not to fund the closing due to the disaster or refuses to fund a loan to the taxpayer because, flood, disaster or other hazard insurance is not available due to the disaster or;</li>
<li>A title insurance company is not able to provide the required title insurance policy necessary to close a real estate transaction due to the disaster.</li>
</ul>

<p>The IRS revenue procedure also provides for a postponement to the last day of the 45-day period for applicable identification of property in a forward or reverse exchange if the identification was made prior to the federally declared disaster but the property was substantially damaged in the disaster event.</p>

<p>This is a summary of the rules pertaining to extensions to exchange transactions due to federally declared disasters. Before acting, taxpayers should reference the <a href="https://www.irs.gov/businesses/small-businesses-self-employed/faqs-for-…; target="_blank">IRS Disaster Relief Guidelines</a> and consult with a professional advisor.</p>

<h2>Recent Tax Relief for Disaster Victims</h2>

<p><a href="https://www.irs.gov/newsroom/help-for-victims-of-hurricanes-irma-and-ma…; target="_blank">Tax Relief for Victims of Hurricanes Irma and Maria</a></p>

<p><a href="https://www.irs.gov/newsroom/help-for-victims-of-hurricane-harvey&quot; target="_blank">Tax Relief for Victims of Hurricane Harvey</a></p>

<p><a href="https://www.irs.gov/newsroom/tax-relief-for-victims-of-wildfires-in-cal…; target="_blank">Tax Relief for Victims of Wildfires in California</a></p>

<p>United States tax code sections 1031 and 1033 are sometimes confused by taxpayers as they are similar, not only in section number, but in that they were both created to provide for tax deferral of depreciation recapture and capital gains on the sale of property, but that's where their similarity ends. <a href="/services/1031-exchange">1031 exchange</a> and 1033 exchange differ materially in:</p>

<ul>
<li>Types of transactions they address</li>
<li>Type of property that can be acquired</li>
<li>Timeline requirements</li>
</ul>

<h2>Section 1033: Involuntary Conversion</h2>

<p>Section 1033 of the tax code provides for the deferral of gain that is realized from an "involuntary conversion." Such a conversion includes property that is destroyed in a casualty, property that is lost due to theft and property that is transferred as the result of condemnation or the threat of condemnation.</p>

<h2>Section 1033: Direct and Indirect Conversions</h2>

<p>With a conversion into replacement property in a 1033 exchange, any gain related to the involuntary conversion is deferred if the conversion involves property considered similar in related service or use. That is, the use of the replacement property must be substantially similar to that of the relinquished property. This is considered a direct conversion. With a condemned property, the replacement property must be considered like-kind, a standard similar to that of Section 1031.</p>

<p>A 1033 conversion may also be indirect – with gain triggered on the amount converted into cash or dissimilar property. Partial deferral of gain in an indirect conversion is elective, and the taxpayer must take certain steps and meet certain criteria in order to defer gain in an indirect conversion. Most importantly, the cost of the qualifying replacement property must be equal to or greater than the amount realized at conversion. Falling short of the replacement cost will trigger gain recognition to the extent of the underinvested portion. Acquisitions from related parties can also trigger gain recognition.</p>

<h2>Section 1033: Timelines</h2>

<p>Generally, replacement property in a 1033 conversion must be acquired within two years of the end of the tax year in which the gain was realized, though some conversions can result in three, four and five-year replacement periods.</p>

<h2>1031 Like-Kind Exchanges</h2>

<p>Unlike 1033, tax code Section 1031 is specific to the voluntary reinvestment of gain from the sale of investment or business use property. In the case of a 1031 exchange, any gain related to the disposition of property is deferred if the replacement property is considered similar in nature and character. The quality or grade of the replacement property is of no consequence in a 1031 like-kind exchange, only that the property is of the same nature, character, or class. In fact, most real estate is considered like-kind to other real estate.</p>

<p>Gain recognition is triggered in a 1031 like-kind exchange if the cost of replacement property is less than the amount of gain from property that is relinquished. Gain recognition would also be triggered in the event that the taxpayer receives property that is not like-kind to the relinquished property. Finally, as in the case of a 1033 conversion, acquisitions from related parties can trigger gain recognition. Learn more about this in <a href="/blog/1031-tax-deferred-exchanges-between-related-parties">“1031 Tax Deferred Exchanges between Related Parties.”</a></p>

<h2>Section 1031: Timelines</h2>

<p>In order to defer gain in a <a href="/services/1031-exchange">1031 exchange</a>, the taxpayer must acquire like-kind replacement property by the earlier of 180 calendar days or the due date of the taxpayer's next income tax return.</p>

<h2>Summary&nbsp;Tax Code Sections 1031 and 1033</h2>

<p>Section&nbsp;1031 and 1033 are both powerful tax deferral strategies, but they differ substantially in their usage. Section 1033 is tax deferral specific to the loss of property by a taxpayer and is therefore is referred to as an involuntary conversion. Section 1031 is the voluntary replacement of real property in an exchange of business or investment assets. Finally, while Section 1031 generally requires the use of a qualified intermediary, Section 1033 does not.</p>

<p>Last week, the "Big Six" released a new tax proposal titled the <a href="http://www.1031taxreform.com/new-tax-reform-framework-released-9-27-201… Framework for Fixing our Broken Tax Code."</a> While laying out broad principles for tax reform, the Framework is lacking in details and does not speak specifically to the preservation or repeal of 1031 like-kind exchanges.</p>

<p>Concurrently with the release of the Framework, Accruit CEO Brent Abrahm was on Capitol Hill as co-chair of the FEA Government Affairs Committee, where he spoke with members of the House Ways &amp; Means Committee about the important of retaining Section 1031 of the tax code.</p>

<p>Brent also joined Daniel Fisher, the Associated Equipment Distributors' (AED) vice president of government affairs, to meet with top legislative advisors to members of the Transportation Committee about how like-kind exchanges are heavily used in their sector.</p>

<p>Accruit is currently working with JBR partner PwC to evaluate the impact of 100% expensing over five years and push to insure interest deductibility is retained for our clients.</p>

<p>_{Photo: AED Vice President of Government Affairs Daniel Fisher and Accruit CEO Brent Abrahm.}</p>

<p>Accruit is proud to help underwrite <a href="http://www.coloradosucceeds.org/succeeds-prize/&quot; target="_blank">The Succeeds Prize</a>, which tonight will recognize and reward educators doing extraordinary work across Colorado with more than $100,000 in cash prizes. The Succeeds Prize is a partnership between <a href="http://www.coloradosucceeds.org&quot; target="_blank">Colorado Succeeds</a> and 9NEWS/KUSA. and tonight's inaugural event will be co-hosted by Colorado Governor John Hickenlooper and Lt. Governor Donna Lynne. Accruit CEO Brent Abrahm is co-chair of the Colorado Succeeds Board of Directors</p>

<p><a href="http://www.9news.com/news/outreach/community/the-succeeds-prize-will-ho… more and tune in to the live stream from 9NEWS at 6:30 p.m.</a></p>