<p>In a May 8, 2017 <em>Tax Notes</em> article, <a href="http://www.1031taxreform.com/wp-content/uploads/Tax-Notes-LKE-Foster-05…; target="_blank">“Advocates Aim to Preserve Like-Kind Exchange in Tax Reform,”</a> Emily Foster explores&nbsp; the issue of repealing 1031 like-kind exchanges as part of the current tax reform efforts in Washington. In the absence&nbsp; of specific guidance regarding like-kind exchanges in either the House GOP tax reform blueprint or President Trump's&nbsp; one-page tax reform plan, analysts are looking closely at former House Ways and Means Committee Chair Dave Camp's 2014&nbsp; tax reform draft, in which Camp had proposed repeal of Section 1031 in its entirety.&nbsp;</p>

<p>Incorporating views from both opponents and advocates of like-kind exchange repeal, Foster's article discusses the history&nbsp; of 1031 exchanges, how and by whom like-kind exchanges are currently used and the potential consequences of repeal.</p>

<p><a href="http://www.1031taxreform.com/wp-content/uploads/Tax-Notes-LKE-Foster-05…; target="_blank">Read the <em>Tax Notes</em> article by Emily L. Foster</a>,&nbsp; reposted with permission from Tax Analysts.</p>

<p>Original publication: <em>Tax Notes</em> by Tax Analysts. “Advocates Aim to&nbsp; Preserve Like-Kind Exchange in Tax Reform,” by Emily L. Foster. May 8, 2017, pp. 726-730. For more <em>Tax Notes </em>content, please visit <a href="http://www.taxnotes.com&quot; target="_blank">www.taxnotes.com</a>.</p&gt;

<h2>Creation of the Role of Qualified Intermediary in the Treasury Regulations</h2>

<p>Prior to the Internal Revenue Code Section 1031 Treasury Regulations issued in 1991 governing exchanges, it was difficult to arrange for the taxpayer’s buyer to actively participate in the taxpayer’s exchange transaction. It could not be accomplished without the buyer’s significant involvement. However, buyers were not typically motivated to assist in the seller’s attempt at tax deferral. The 1991 regulations sought to deal with this thorny problem by creating a new entity known as a <a href="https://www.accruit.com/about-us/how-choose-qualified-intermediary">qua… intermediary (QI)</a>.</p>

<p>The QI would serve as an intermediary to whom the taxpayer’s relinquished property would be transferred, and from whom it would be transferred to the taxpayer’s buyer. Additionally, the QI would acquire replacement property from a seller and transfer it to the taxpayer. Hence, the taxpayer would not do an exchange with a buyer or seller but with the QI. Since both relinquished and replacement properties passed between the taxpayer and QI, the QI was referred to as an “intermediary,” but what makes the Intermediary <i>qualified</i>?</p>

<h2>Persons Disqualified to Act as Intermediary</h2>

<p>To answer this, it is helpful to review the regulations to see what persons are specifically not qualified to facilitate an exchange. Anyone who is not disqualified should then be considered qualified. Also, it should be noted that, although in these regulations (and the Tax Code) there are references to <i>persons, </i>that term is also deemed to refer to other entities, as well. In general, an agent or related party of the taxpayer is disqualified. The regulations state:</p>

<blockquote>
<p style="margin-bottom:.0001pt">“The person is the agent of the taxpayer at the time of the transaction. For this purpose,a person who has acted as the taxpayer's employee, attorney, accountant, investment banker or broker, or real estate agent or broker within the 2-year period ending on the date of the transfer of the first of the relinquished properties is treated as an agent of the taxpayer at the time of the transaction”</p>
</blockquote>

<p>If any of this group of persons provided services within two years of the sale of the relinquished property, that person (or entity) is disqualified. There are several exceptions, and the primary one pertains to financial institutions. This exception applies where the entity has provided “routine financial, title insurance, escrow, or trust services for the taxpayer by a financial institution, title insurance company, or escrow company.” So, for example, a company who provides routine banking services or escrow services can still be qualified to act under these rules.</p>

<h2>Related Parties as Qualified Intermediaries</h2>

<p>As for having a related party act as the QI in an exchange, the rules make reference to code sections 267(b) and 707(b). The rules in these code sections apply specifically to a taxpayer wishing to buy replacement property from an individual or entity to whom the taxpayer is related, however the disqualified person rules borrow from these provisions. I address the specifics of the related party rules in <a href="/blog/1031-tax-deferred-exchanges-between-related-parties">"1031 Tax Deferred Exchanges Between Related Parties."</a></p>

<p>The related party rules primarily disallow a person from acting as QI if they are a familial relation to the taxpayer. With regard to entities in which the taxpayer may have an ownership interest, the related party rules provide that a greater than a 50% interest between the taxpayer and a replacement property seller will cause the transaction to be disallowed. For instance, if taxpayer A wished to buy his replacement property from a two-member LLC of which A and B were equal members, the transaction would be allowed since A does not have a <i>greater than 50%</i> interest in the LLC. Not so if A has a greater than 50% interest.</p>

<p>The disqualified person rules mirror the related party rules with one significant difference. For the disqualified person rules, the 50% interest rule is reduced to 10%. So, in the example above, because A has a membership interest of greater than 10%, he could not serve as a QI.</p>

<h2>Additional Exchange Company Roles</h2>

<p>Although here I am specifically addressing persons disqualified from acting as qualified intermediaries, it should be noted that there are similar roles that may also be serviced by an exchange company, from which such persons would be similarly disqualified. These roles include those of qualified escrow agent, trustee of a qualified trust and, for reverse 1031 exchanges, exchange accommodation titleholder. Acting in any one of these capacities would require that the service provider not be a disqualified person.</p>

<h2>Conclusion</h2>

<p>In summary, to act as a qualified intermediary a person or entity must not be a <i>disqualified person</i> under the applicable regulations. Persons who are agents of the taxpayer, defined as having done work for the taxpayer during the prior two-year period, are disqualified. This rule does not apply if the service provided has merely consisted of routine financial services during that period.</p>

<p>Additionally, a related party cannot provide QI services if that party is one of enumerated types of relations to the taxpayer or if the taxpayer has an interest in the service provider greater than 10%. Finally, if a person is not disqualified, then the person is qualified.</p>

<p>For more information on this or other 1031 topics, contact me today.</p>

<p>(312) 207-1031<br />
martine@accruit.com</p>

<p style="margin-left:.5in">&nbsp;</p>

<p>Accruit is participating in the <a href="https://netforum.avectra.com/eWeb/DynamicPage.aspx?Site=AED&amp;WebCode…; target="_blank">AED Financial/HR Symposium 2017</a> in Miami this week where equipment distributors will be learning about best practices, receiving regulatory and legal updates, and discussing the latest ideas in the areas of finance and human resources.</p>

<p>Among the speakers at the conference will be Commander Kirk S. Lippold, of the United States Navy, who was the commanding officer of the USS Cole on October 12, 2000, when the ship was bombed by Al-Qaeda terrorists. An exemplary leader in the face of extreme circumstances, Commander Lippold will speak about the Five Pillars of Leadership.</p>

<p>Accruit's Vice President of Service Operations, Steve Chacon, will speak on the topic of dealer pass throughs, in which equipment owners combine trade-in treatment with like-kind exchange benefits to maximize their benefits when replacing equipment. Read more about dealer pass throughs in this blog post.</p>

<p>&nbsp;</p>

<p><br />
&nbsp;</p>

<p>Earlier this month, as part of Accruit's ongoing advocacy efforts, I attended the Associated Equipment Distributors (AED) 2017 Washington Fly-In, an opportunity for AED members to actively participate in the legislative process on important issues. Tax reform is one such issue, along with the preservation of Section 1031 like-kind exchanges and the benefit they represent to the industry and the economy.</p>

<p>Our fly-in agenda was packed with meetings with legislators, all of whom play an influential role in the direction that tax reform will take. Over the course of three days, we met with numerous committee and sub-committee chairmen, the Speaker of the House of Representatives, the Secretary of the Interior, and other high-ranking White House advisors.</p>

<p>Below are highlights from our meetings, but I’m happy to share more information if you’re interested. Please contact me or leave a comment on this post.</p>

<h2>AED Washington Fly-In 2017 Highlights</h2>

<ul>
<li>Chairman of the House Rules Committee Pete Sessions (R-TX), a strong supporter of like-kind exchanges, hosted our group at an event at the Capitol Hill Club where House Speaker, Paul Ryan, shared some of the current ideas pertaining to the House Republican Blueprint for tax reform.</li>
<li>We also met with Congressman Ken Buck (R-CO) at this event about the benefits that like-kind exchanges represent to the heavy equipment industry and the positive effects that Section 1031 has been shown to have on the United States economy as a whole.</li>
<li>Secretary of the Interior, Ryan Zinke met with our group to discuss excessive regulation on infrastructure projects. But emphasized the importance of managing and protecting our land, water and wildlife.</li>
<li>Congresswoman Cheri Bustos (D-IL), considered a “blue-dog” Democrat, reminded us that there are several Congressional minority members that recognized the importance of tax reform and strong pro-business policy.</li>
<li>Chairman of the Tax-Policy Subcommittee of the House Ways and Means Committee, Peter Roscam (R-IL), spoke to the AED about the necessity for tax reform, noting, “You can’t jam tax reform down people’s throats. You need permanent reforms to the tax code.”</li>
<li>Assistant to the President and Director for the Office of Public Liaison George Sifakis, Deputy Director Stephen Munisteri, and Special Assistant to the President for Tax and Retirement Policy Shariha Knight were our hosts in the prestigious Indian Treaty Room to introduce the AED to the Trump administration’s Office of Public Liaison and elaborate on its function.</li>
<li>Discussions with Senior White House Advisor, Anthony Pugliese focused on the Department of Transportation and the need for more efficiency within that department.</li>
<li>Finally, a breakfast with House Ways &amp; Means Committee member Representative Patrick Meehan (R-PA), where just the two of us discussed the details of Chairman Brady’s proposed Blueprint and the potential implication businesses will encounter due to the non-deductibility of interest expenses.</li>
</ul>

<h2>Summary</h2>

<p>Tax reform is on the horizon, but just when it will happen is anyone’s guess. There is a collective desire to act prior to Fall recess. If our meetings were any indication, the divisiveness in Congress and the uncertainty of where the Trump administration stands may forestall action on that timetable.</p>

<p>Simplification and fairness are agreed upon goals, however the disagreement is in the details – what stays and what goes, which parts of the tax code are up for repeal. My purpose is to point out unintended consequences that will impact U.S. companies and to advocate for the retention of like-kind exchanges and <a href="/blog/new-study-confirms-like-kind-exchanges-encourage-job-creation-and-stimulate-economic-growth">the benefits they represent in your industry and the economy</a>. I assure you, our message was heard.&nbsp;</p>

<p>Tax reform is certainly forthcoming and necessary, but the shape that reform takes requires careful consideration. If we sacrifice the incentives that allow businesses to grow in return for simply lower tax rates, then we fail at this unique opportunity for actual reform. Please stay engaged and informed through this process, and <a href="http://www.1031taxreform.com/&quot; target="_blank">let your congressional representatives know</a> what does and does not drive your business.</p>

<p>_{Photo: Accruit CEO Brent Abrahm with Representative Pete Sessions (R-TX), Chairman of the House Rules Committee}</p>

<p>Last month, Accruit EVP and General Counsel, <a href="/users/martin-edwards">Martin Edwards</a>, was the featured speaker for ATG Trust’s accredited Continuing Legal Education series. Edwards’ presentation, “Section 1031 Exchanges - The Basics and Beyond,” was one of the highest attended ATG Legal Education seminars ever. The presentation material included subject matter expertise accumulated during Edwards' 30+ years of administering tax-deferred exchanges. Topics included:</p>

<ul>
<li>The basic rules of § 1031 exchanges;</li>
<li>The types of exchanges available to your clients;</li>
<li>Properly structuring § 1031 exchanges to meet your clients' specific needs; and</li>
<li>Strategies for deferring as much capital gain taxes as possible.</li>
</ul>

<p>The webinar is available to attorneys and non-attorneys on-demand and at no cost through the <a href="https://www.atgf.com/legal-ed/atg-legal-education-home-page&quot; target="_blank">ATG Legal Education portal</a>. For login information, please email <a href="mailto:info@accruit.com?subject=ATG%20Continuing%20Legal%20Education%20…;

<p>Soon, Congress will propose sweeping tax reform legislation. The new tax policies will have a direct bearing on the heavy equipment industry and play a big role in how equipment dealers operate.</p>

<p>Accruit and PwC will again join the effort as the AED's Preferred Providers of Like-Kind Exhanges to advocate on behalf of AED members for sensible, pro-growth tax policies that benefit American businesses. Accruit CEO, Brent Abrahm, and PwC Tax Partner, Dave Fowler, will spend the three days at the <a href="https://netforum.avectra.com/eweb/DynamicPage.aspx?Site=AED&amp;WebCode…; target="_blank">2017 AED Washington Fly-In</a> meeting with policymakers to discuss the positive impact that 1031 like-kind exchanges have on the U.S. heavy equipment industry.</p>

<p>In addition, Fowler will be featured on the AED’s Tax Policy Panel where he will join leading policy experts to discuss the status of comprehensive tax reform and the positive effects of retaining 1031 like-kind exchanges moving forward.</p>

<p><a href="mailto:brenta@accruit.com?subject=Email%20from%20AED%20Washington%20Fly… Brent Abrahm</a> with any questions about 1031 advocacy efforts and how you can help.</p>