1031 Exchange Blog

BLOG

Accruit Purchases North Star Deferred Exchange Company From BMO Financial Corporation

09/07/11

Accruit purchases North Star Deferred Exchange Company providing the exchange industry with one of the broadest service offerings available.

Body:

<p><strong>DENVER (Sept. 6, 2011)</strong> -- Accruit, LLC, the nation’s leading Qualified Intermediary (QI) for Section 1031 Program Like-Kind Exchanges (LKE), has entered into a definitive agreement to acquire North Star Deferred Exchange Corp, located in Chicago, Illinois, from BMO Financial Corporation. North Star Trust Company and its affiliates will remain a part of BMO Financial Corporation. North Star Deferred Exchange and North Star Trust Company are not related to Northstar Trade Finance, Inc., another company in which BMO Financial Group maintains an interest.</p>

<p>Since 1997, North Star Deferred Exchange Corp (NSDE) has been a national provider of QI and Exchange Accommodation Titleholder (EAT) services for complex exchanges of both real and personal property, specializing in reverse, build-to-suit and improvement exchanges.</p>

<p>Section 1031 of the Internal Revenue Code enables property owners to defer taxable gain on the disposition of assets if those assets are replaced with like-kind assets. Accruit’s patented Like-Kind Exchange (LKE) process has been employed by companies in over 20 different industries to turn billions of dollars of tax liability into retained cash flow for the acquisition of new assets. Accruit’s platform allows all transaction phases to be managed electronically, delivering valuable tools to clients, advisors and administrators of portfolios.</p>

<p>Leveraging the technology and experience of both companies provides the exchange industry with one of the broadest service offerings available. Accruit and NSDE have demonstrated proficiency in exchanges of real estate, automobile and truck fleets, construction, aggregate and agricultural equipment, railcars, aircraft and portfolios of leased equipment, as well as more unusual transactions involving such things as rare art and other collectibles, classic Indy 500 race cars, race horses, cranberry bogs and highway billboards.</p>

<p>Martin Edwards, President of NSDE, described joining Accruit as “an exciting opportunity to combine the existing strengths and expertise of both companies and harness the innovative spirit shared by Accruit and NSDE as we expand our service capabilities.” Edwards will continue to serve as President of NSDE. He will also become Vice President and General Counsel of Accruit and a part of the management team upon closing.</p>

<p>The combined entities offer continuity for existing LKE Program customers of both companies and expanded capabilities for new ones. Brent Abrahm, President and CEO of Accruit, stated: “In addition to the many clear benefits of this acquisition, NSDE’s significant niche in the LKE Program area bolsters the strong and unique Joint Business Relationship Accruit enjoys with PricewaterhouseCoopers LLP (PwC), where our complementary services provide a comprehensive solution for program exchanges in the LKE industry. Marty’s reputation in the marketplace, along with his 25 year history of facilitating forward and reverse exchanges makes this acquisition a strategic step in expanding Accruit’s current offerings in the arena of real property exchanges.”</p>

<p>As part of the management change at Accruit, Abrahm also announced that the task of identifying funding sources and acquisition candidates has largely been accomplished at this time and that Accruit’s CFO, Juan Perez, who had been spearheading those efforts, will be leaving Accruit. “We respect and appreciate what Juan has helped us accomplish, and know he will be a valuable asset to his next company.”</p>

<p>NSDE’s Independent Director/Independent Manager Services, which facilitate lender required, bankruptcy-remote LLC structures, will also be continued and expanded under Accruit’s ownership.</p>

<p>BMO Financial Group is a highly diversified North American financial services organization which provides a broad range of retail banking, wealth management and investment banking products and solutions.</p>

<p>The parties anticipate a closing in September 2011.</p>

<p></p>

Metatags:

Title:

Accruit Purchases North Star Deferred Exchange Company From BMO Financial Corporation

09/07/11

Accruit purchases North Star Deferred Exchange Company providing the exchange industry with one of the broadest service offerings available.

The Impact of 100% Bonus Depreciation on LKE Programs

03/15/11

In this article, we discuss looking at more than just the Federal tax benefit when considering the suspension of a 1031 ...

Body:

<p><em>Article republished with permission of our Joint Business Relationship partner, <a href="http://www.pwc.com/" target="_blank" title="PwC">PwC</a>.</em></p>

<p>Many companies with active like-kind exchange (LKE) programs are trying to understand how the new 100% bonus rules will impact their LKE benefits, and may even be considering suspending their programs for 2011 due to the enhanced bonus deduction. Since a program suspension could potentially create new tax and business process issues, it is important to look at more than just the Federal tax benefit when considering the suspension of a LKE program. Other factors to consider include:</p>

<ul>
<li>Impact of state decoupling from Federal "bonus" rules</li>
<li>State NOL considerations</li>
<li>Federal Alternative Minimum Tax ("AMT") considerations for individual owners of S-Corporations and partnerships</li>
<li>Ability to utilize used property as replacement property to maximize LKE and bonus benefit</li>
<li>Bonus depreciation sunset planning opportunities</li>
<li>Utilizing LKE service providers for fixed asset tax compliance and reporting</li>
<li>Time and resources needed to "de-institutionalize" a company's LKE processes</li>
</ul>

<p>A more detailed overview of each consideration is listed below.</p>

<p><strong>The Federal tax impact of 100% bonus - with and without a LKE program</strong></p>

<p>On December 17, 2010, President Obama signed HR 4853, the "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010" (the "Act"). The Act increases the bonus depreciation deduction from 50% to 100% for qualifying property acquired and placed in service after September 8, 2010 and before January 1, 2012. In addition, it also extends a 50% "bonus" depreciation deduction for property acquired and placed in service in 2012. In order to qualify for "bonus" depreciation, the property must be new and it must have a tax recovery period of 20 years or less.</p>

<p>The impact of 100% bonus depreciation on companies with and without LKE programs is illustrated in the following example where an asset is sold for a gain and the replacement property qualifies for 100% bonus depreciation. In this example, a five year MACRS asset acquired in 2009 is sold for $15,000 with a tax basis of $4,800, resulting in realized gain of $10,200. A like kind asset is acquired for $25,000. Since gain deferred by LKE reduces the depreciable basis of replacement property acquired as part of an exchange, it also reduces the amount of the 100% bonus depreciation allowed in regard to that property.</p>

<p>While it's clear from the example above that there is no Federal tax benefit derived from an LKE program during the period of 100% bonus depreciation (September 9, 2010 to December 31, 2011), only considering the Federal impact fails to address a number of other important factors. Failure to do so could result in significant additional Federal and state taxes in both the current and future tax years.</p>

<p><strong>Impact of states decoupling from Federal "bonus" rules</strong></p>

<p>In the current economic environment, many states are experiencing significant fiscal challenges that prevent them from adopting generous Federal bonus depreciation rules (100% bonus or otherwise). Approximately 80% of the states have not adopted previously enacted Federal bonus depreciation rules. These states are likely to continue this trend and others may join. In states that decouple from the Federal bonus depreciation rules, <strong>the suspension of a company's LKE program could result in an additional 2011 state tax liability equal to the company's forgone LKE deferral multiplied by the state's highest marginal tax rate</strong>. Depending on the state, that tax bill could amount to as much as 11% of the foregone LKE deferral.</p>

<p>To illustrate, let's assume the same asset is sold as in the previous example. In this instance, let's also assume that the relevant state has decoupled from Federal bonus depreciation. For state purposes, a gain of $5,400 would be realized (sales proceeds of $15,000 less state tax basis of $9,600).</p>

<p>This example illustrates the potential state tax savings from the sale of one asset. While individual company situations will vary, we expect that state tax savings will be significant for many companies if they are filing in states that have decoupled from bonus depreciation. Please contact us if you would like more information on the states that have decoupled. As more fully explained below, a reduction in state taxes can also reduce the alternative minimum tax ("AMT") for owners of closely held companies.<strong> </strong></p>

<p><strong>State Net Operating Loss (NOL) considerations</strong></p>

<p>Many states have Net Operating Loss (NOL) carryback and carryforward provisions that are more restrictive than the "2 years back and 20 years forward" provisions under Federal law. In addition, for the same budgetary reasons mentioned above, some states have suspended or eliminated NOL carrybacks and carryforwards. Where NOLs are restricted, taxpayers need to closely examine their own facts and circumstances to determine the impact of bonus depreciation on their taxable income.</p>

<p><strong>AMT considerations for individual owners of S-Corporations and partnerships</strong></p>

<p>As explained above, maintaining LKE can result in a reduction of state taxes since most states did not allow bonus depreciation. Because individual taxpayers are not allowed to deduct state income taxes in calculating their Federal Alternative Minimum Tax (AMT), LKE will generally reduce the state tax preference item which may either decrease or eliminate AMT. However, <strong>if a taxpayer suspends its LKE program, its state tax liability will increase, increasing the state preference item, and possibly result in additional AMT. </strong></p>

<p>In addition, AMT resulting from lost state tax deductions is not allowed in the calculation of AMT credits that are typically allowed to offset certain regular tax liabilities in future tax years. Accordingly, for those taxpayers who incur additional state income tax as a result of suspending their LKE program and who are also subject to AMT, <strong>suspending their LKE program may result in additional AMT that can not be recouped in future years.</strong></p>

<p>AMT can be influenced by a number of factors and is taxpayer specific. We are available to help you better understand the AMT benefits that may be achieved with your LKE activity.</p>

<p><strong>Ability to utilize used property as replacement property to maximize LKE and bonus benefits</strong></p>

<p><strong>Used property does not qualify for bonus depreciation.</strong> However, LKE allows used property to be used as replacement property to complete an exchange. In addition, LKE safe harbor rules provide taxpayers flexibility in matching relinquished and replacement properties to complete exchanges. This flexibility presents a planning opportunity for companies to complete exchanges with "used" replacement property acquisitions that do not qualify for bonus depreciation rather than new property acquisitions that would otherwise qualify for 100% bonus depreciation. For companies who acquire used property, this can be an important consideration in evaluating the benefit of LKE activity in 2011.</p>

<p><strong>Bonus depreciation sunset planning opportunities</strong></p>

<p>LKE rules give taxpayers who "identify" potential replacement property up to 180 days to acquire identified replacement assets. Consequently, assets sold after July 1, 2011 can be exchanged for assets acquired after December 31, 2011 which are not eligible for 100% bonus depreciation. In this way, taxpayers can take advantage of the 100% bonus depreciation deduction for assets acquired in 2011 while still achieving a benefit for gains deferred from assets sold in the second half of 2011.</p>

<p>Careful planning in this area may significantly increase the amount of Federal and state NOLs available to offset income which can be used to reduce taxes in past and future years through carryback and carryforward provisions.</p>

<p><strong>Utilizing your LKE Service provider for fixed asset tax compliance and reporting </strong></p>

<p>Most companies use their LKE provider to periodically calculate and report tax depreciation on LKE, and in some cases, non-LKE assets. For these companies, suspending their LKE programs might not result in a significant cost savings since they would need to develop and implement alternative processes to calculate and report tax depreciation, or continue to use their LKE provider for this service.</p>

<p><strong>Time and resources needed to "de-institutionalize" a company's LKE processes</strong></p>

<p>The requirements of an LKE program necessitate changes to operational business processes in order to institutionalize LKE for asset dispositions and acquisitions. Designing and implementing these operational changes requires significant time and resources from company professionals in a variety of areas including treasury, accounting, tax, procurement, remarketing, legal, and customer and vendor communications.</p>

<p>Suspending an LKE program may require amendments to the company's exchange agreements, modifications of the company's cash processes and account structures, or require changes to communications that the company makes to its customers and vendors. All of these changes require time, effort and expense to modify. These costs and changes to institutionalized business processes must be considered relative to the benefits of suspending an LKE program for a relatively short period of time.</p>

<p><strong>Summary</strong></p>

<p>As discussed above, only considering the Federal tax benefits of 100% bonus depreciation does not provide a complete analysis of the issues that should be considered when deciding to maintain or suspend an LKE program during 2011. While the long term advantages of an LKE program are clear, the short term benefits during periods of 100% bonus depreciation require a careful evaluation of all relevant factors to determine the best overall tax position and course of action for the company.</p>

<p>LKE programs represent an effective tool that companies can use for Federal and state tax planning, and streamlining their fixed asset processes. In addition, if 100% bonus depreciation is utilized, an LKE strategy becomes even more important when bonus expires, as a company's tax basis in its fixed assets will be reduced to zero which ultimately will lead to large tax gains unless deferred through an LKE program.</p>

<p></p>

Metatags:

Title:

The Impact of 100% Bonus Depreciation on LKE Programs

03/15/11

In this article, we discuss looking at more than just the Federal tax benefit when considering the suspension of a 1031 ...

Learn more about EnergyNet, our new partner in the O&G industry

08/11/10

Accruit partners with Amarillo-based EnergyNet, the industry's premier continuous oil and gas property marketplace, as their exclusive 1031 exchange provider.

Body:

<p>Accruit has recently partnered with Amarillo-based <a href="http://www.energynet.com/index.pl" target="_blank">EnergyNet</a>, the industry's premier continuous oil and gas property marketplace, as their exclusive 1031 exchange solutions provider. We're obviously excited to be working with one of the O&G world's finest companies and we're looking forward to bringing the same powerful cash flow and asset management benefit to their clients that we have to hundreds of other businesses in recent years.</p>

<p>Accruit is proud of our unparalleled roster of strategic partners, and we encourage you to take a few minutes to get to know them.</p>

Metatags:

Title:

Learn more about EnergyNet, our new partner in the O&G industry

08/11/10

Accruit partners with Amarillo-based EnergyNet, the industry's premier continuous oil and gas property marketplace, as their exclusive 1031 exchange provider.

New Hampshire enacts 1031 exchange reform bill

07/16/10

The Federation of Exchange Accommodators (FEA) has received confirmation that the New Hampshire Governor John Lynch has signed SB 483 into ...

Body:

<p>The Federation of Exchange Accommodators (FEA) has received confirmation that the New Hampshire Governor John Lynch has signed SB 483 into law. According to the FEA:</p>

<blockquote>
<p>The new law amends prior law, which deprived taxpayers of Section 1031 tax deferral on a state level if they purchased replacement property in the name of a new entity, notwithstanding that the acquiring entity was a disregarded entity. The typical situation would be that in which a taxpayer was required by a lender or TIC sponsor to acquire a replacement property in the name of a new single member LLC. The State of New Hampshire began disallowing exchange treatment on those transactions in 2008 and began to audit previously closed transactions as far back as 2004, without notice either to taxpayers or to the professionals in the industry.</p>

<p>The new law makes it clear that exchange treatment will not be affected by taking title in the new entity as long as the entity is a single member LLC, revocable trust or other entity which is disregarded for federal income tax purposes. The amendment eliminates the “claw back” efforts to 2004.</p>
</blockquote>

<p>Accruit President and CEO Brent Abrahm, who co-chairs the organization's state legislative committee, says the new legislation is very good news for businesses in the state of New Hampshire and applauds the state's lawmakers for working to put its companies on a level footing with those in neighboring states.</p>

<p>Abrahm encourages potentially affected businesses to consult with their tax advisors on how SB 483 might affect their tax strategies. Additionally, Accruit representatives are happy to assist in these discussions in any way that the tax advisor deems appropriate.</p>

Metatags:

Title:

New Hampshire enacts 1031 exchange reform bill

07/16/10

The Federation of Exchange Accommodators (FEA) has received confirmation that the New Hampshire Governor John Lynch has signed SB 483 into ...

IRS Chief Counsel Advisory 201025049: are there implications for your 1031 exchange program?

07/15/10

Accruit monitors the marketplace for factors that may have an impact on its clients and partners. Read more about the ...

Body:

<p>Accruit is committed to closely monitoring the marketplace for factors that may have a potential impact on our clients and partners. The IRS recently issued a ruling that we believe is of interest to many companies with 1031 exchange programs, and we thought we'd take this opportunity to offer some details on that ruling.</p>

<p>It should be noted that this is <em>not</em> intended as tax advice - Accruit does not provide tax guidance. We do, however, encourage any business that thinks they may be affected to discuss the following information with their respective tax advisors. Accruit is glad to be involved, as appropriate, in those discussions.</p>

<h4>The Ruling</h4>

<p>On June 25, 2010 the Internal Revenue Service (IRS) National Office of the Chief Counsel released Chief Counsel Advisory (CCA) 201025049. <strong>In brief, this ruling reaffirms that depreciation deductions and like-kind exchange (LKE) treatment may not be allowed for equipment held primarily for sale.</strong></p>

<p>It is of the utmost importance to note that this CCA is heavily dependent on a very specific set of facts and circumstances surrounding a single taxpayer employing LKEs as part of their overall tax planning strategy. Furthermore, under Title 26, section 6110(k)(3), CCA determinations are not to be used or cited as precedent. This said, published determinations like this CCA can provide important insight and guidance regarding specific issues.</p>

<p>It's also important to note that the phrase "property held primarily for sale" is not arbitrary. It appears throughout the Internal Revenue Code (IRC) and, as such, has undergone extensive litigation. Additionally, the Supreme Court has held under the definition of capital assets that "primarily" is defined as "of first importance" or "principally."</p>

<p>Ultimately, and despite the taxpayer's own designation of the equipment as primarily held for rental, the Chief Counsel determined the property was principally held for sale, with rental of secondary importance. (Note: the taxpayer in question is not an Accruit client.)</p>

<p>The following summarized facts serve to support the Chief Counsel's position:</p>

<ul>
<li>The taxpayer structured the sales of designated rental equipment as LKE transactions.</li>
<li>Taxpayer's overall revenue structure consists of:
<ul>
<li>equipment sales making up 91% of total income, and</li>
<li>equipment rentals making up 9% of total income.</li>
<li>Information provided to the IRS indicated that a substantial portion of the equipment designated as rental was sold prior to generating any rental income.</li>
</ul>
</li>
<li>The IRS Examination Division sampled a number of replacement properties received in LKE transactions and determined that many were disposed of shortly after purchase and none of the replacement properties were rented prior to disposition.
<ul>
<li>Of all the replacement property purchased during Year 1, 40% was disposed of that same year.</li>
<li>Nearly half of these dispositions occurred within 90 days of the replacement property's receipt by the taxpayer.</li>
</ul>
</li>
</ul>

<h4>Implications</h4>

<p>Under IRC section 1031(a), Qualified LKE sales are disposals of relinquished property defined as "held for productive use in a trade or business or for investment." Property that is held primarily for sale (inventory) is specifically disqualified from LKE treatment.</p>

<p>Does this ruling mean that companies with 1031 exchange programs should conduct a review? Perhaps. This depends on the details of the particular program. The CCA does highlight the importance of properly classifying and qualifying both relinquished and replacement property with respect to LKE eligibility, and it's always a good idea to make sure that a program remains in compliance with the guidelines established during implementation.<strong> </strong></p>

<p><strong>Accruit advises any company that believes it may be implicated by the Chief Counsel's reasoning to discuss with their tax advisor what steps should be taken (and documented) to help ensure that relinquished property is truly separate and distinct from those assets that are held exclusively or primarily for sale.</strong></p>

Metatags:

Title:

IRS Chief Counsel Advisory 201025049: are there implications for your 1031 exchange program?

07/15/10

Accruit monitors the marketplace for factors that may have an impact on its clients and partners. Read more about the ...

FEA calls Federal regulation of Exchange Facilitators in financial reform bill a good start

06/24/10

President Obama is slated to sign the Consumer Financial Protection Act of 2010 (CFPA) into law in the coming days, and ...

Body:

<p><strong><em>Industry's only trade association supports strong regulation, looks forward to working with Consumer Financial Protection Bureau to craft consumer protection measures</em></strong></p>

<p>President Obama is slated to sign the Consumer Financial Protection Act of 2010 (CFPA) into law in the coming days, and the <a href="http://1031.org" target="_blank">Federation of Exchange Accommodators (FEA)</a> believes the move is an important first step toward assuring comprehensive protection for all consumers. The FEA, the trade association representing the exchange facilitator industry, says it looks forward to working with the Consumer Financial Protection Bureau to develop regulations governing exchange facilitators, also known as Qualified Intermediaries, who facilitate tax-deferred exchange transactions under Internal Revenue Code §1031.  Regulations are needed especially with respect to the security of client funds.</p>

<p>The CFPA will include a provision requiring the Director of the Consumer Financial Protection Bureau to conduct a study and propose legislation and/or regulations to protect consumers using exchange facilitators.  The study and recommendations must be completed with one year after the new law takes effect, and a program or proposed regulations must be implemented within two years after the Director's report.</p>

<p>"This is a great beginning.  However, there is much more work to be done to achieve our goal of comprehensive federal regulation that will cover all exchange clients and transactions," stated FEA President David Gorenberg.  "The FEA has previously communicated to legislators our support for this bill along with our technical concerns that many transactions will not fit the definitional scope of the CFPA.  We are looking forward to working with the Director and the legislative sponsors to identify and suggest regulations or legislation that will not be limited to transactions solely involving individuals engaged in exchanges for 'personal, family or household use,'" echoed Suzanne Goldstein Baker, chairperson of the FEA's Federal Legislative Committee.  "The FEA intends to work with the Director to ensure that all taxpayers, regardless of whether they are individuals or business entities, benefit from mandatory protections," added Mr. Gorenberg.</p>

<p>The FEA has been a strong supporter of federal regulation of its industry to require prudent funds management standards and other protections for its clients.  In 2007 the FEA petitioned the FTC for regulatory oversight and submitted to it a comprehensive draft regulation.  The FTC denied the petition, concluding that there was no evidence of pervasive fraud throughout the industry and thus, the burdens of regulation would outweigh the potential benefits. The FEA has since been actively involved in passing state legislation to regulate exchange facilitators.  The FEA drafted a "model law" which the states of California, Colorado, Maine, Nevada, Oregon, Virginia and Washington have adopted with slight variations. The FEA has also submitted to the Secretary of the Treasury and the Internal Revenue Service a proposed amendment to Treasury Regulations which would impose reasonable, understandable standards of prudent funds management requiring that funds held by Qualified Intermediaries be invested in a manner that maintains liquidity and preserves principal.</p>

<h4>About the FEA</h4>

<p>The Federation of Exchange Accommodators (FEA) is the industry association for exchange facilitators.  FEA member companies facilitate tax-deferred exchanges of investment and business use properties under IRC §1031 for taxpayers of all sizes, from individuals of modest means to high net worth taxpayers and business entities.  Members range from small, privately held businesses to large, publicly traded companies and banks.  Transactions range from less than $100,000 to hundreds of millions of dollars involving commercial and residential real estate, aircraft, trucks, trailers, containers, railcars, heavy equipment and other assets.  To comply with tax rules, exchange facilitators typically hold proceeds from the sale of relinquished assets until they can be reinvested in replacement assets to complete the exchange.  Section 1031 exchanges must be completed within 180 days.  More information is available on the FEA's website, <a href="http://www.1031.org" target="_blank">1031.org</a>.</p>

<h5>CONTACT</h5>

<p>Caitlin Middleton, Executive Director<br />
Federation of Exchange Accommodators<br />
100 N. 20<sup>th</sup> St., 4<sup>th</sup> FL<br />
Philadelphia, PA 19103<br />
(215) 564-3484<br />
<a href="mailto:cmiddleton@fernley.com" target="_blank">cmiddleton@fernley.com</a><br />
<a href="http://www.1031.org" target="_blank">www.1031.org</a></p>

Metatags:

Title:

FEA calls Federal regulation of Exchange Facilitators in financial reform bill a good start

06/24/10

President Obama is slated to sign the Consumer Financial Protection Act of 2010 (CFPA) into law in the coming days, and ...

BLOG

BLOG UPDATES