2. other indicia of ownership such that the EAT is treated as the beneficial
owner of the property, as in a contract for deed; or
3. a single member LLC
that holds legal title to the property (or some other entity that is
disregarded for federal income tax
purposes), the membership interest of
which is owned by the EAT.
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At the time the property is
transferred to the EAT, the Taxpayer must have bona fide intent
that the property represents either
Replacement Property or Relinquished
Property that is intended to qualify for non-recognition of gain under
Section 1031.
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The QEAA must specify:
1. The EAT is holding the property for
the benefit of the Taxpayer to facilitate a 1031 exchange; and
2.
The EAT is the beneficial owner
of the property; and
3. The parties must report ownership
of the property as such for federal income tax purposes.
IDENTIFICATION REQUIREMENTS
Within 45 days after the Replacement
Property is parked with the EAT, the Taxpayer must identify the Relinquished
Property to be transferred in the forward exchange. The identification must
be made in a manner consistent with the Treasury Regulations (i.e, the
“three-property rule or the “200% rule”).
PARKING
PERIOD
Within 180 days after Property is parked
with the EAT, parked Replacement Property is transferred to the Taxpayer as
Replacement Property. Parked Relinquished Property is transferred to a
third party purchaser or returned to the Taxpayer. If Relinquished Property
is returned to Taxpayer, the exchange will fail to qualify under Code Section
1031.
NON-ARMS LENGTH AGREEMENTS
The Revenue Procedure allows the Taxpayer
and EAT to enter into a number of non-arms length agreements during the time
that the property is parked with the EAT. These agreements allow the Taxpayer
to manage and control the property during the parking period, and relieve
the EAT of liabilities associated with property acquisition, ownership and
disposition. The Revenue Procedure provides the following:
A.
Taxpayer can loan funds to the EAT to acquire
Replacement Property or guarantee third party financing.
B.
Taxpayer can indemnify the EAT against costs and
expenses.
C.
Taxpayer can lease the parked property from the
EAT.
D.
Taxpayer can manage the property, oversee
improvements, act as contractor, and provide services to the EAT.
E.
Taxpayer and the EAT can enter into agreements
arranging for the purchase or sale of the property, including puts and
calls,
effective for a period not to exceed 185 days from the date the EAT
acquires the property.
F.
Taxpayer and the EAT can enter into an agreement to
deal with fluctuations in the price of the property during the period of
time
the property is parked with the EAT.
