## Facts

- The IRS issued an administrative safe harbor addressing “reverse” like-kind exchanges under I.R.C. § 1031, where a taxpayer acquires replacement property before disposing of relinquished property.
- Prior deferred exchange regulations under Treas. Reg. § 1.1031(k)-1 addressed forward deferred exchanges and expressly did not apply to reverse exchanges.
- Taxpayers had used “parking” structures with an accommodation party to temporarily hold replacement or relinquished property, aiming to satisfy § 1031 while managing ownership “benefits and burdens” analysis.
- The procedure created the concepts of a qualified exchange accommodation arrangement (QEAA) and an exchange accommodation titleholder (EAT) to provide objective, time-limited conditions for non-challenge treatment.
- The safe harbor applies to QEAAs in which the EAT acquires qualified indicia of ownership on or after September 15, 2000.

## Issues

1. Under what conditions will the IRS refrain from challenging whether property held in a parking arrangement qualifies as “replacement” or “relinquished” property for § 1031 purposes?
2. Under what conditions will the IRS refrain from challenging the treatment of an EAT as the beneficial owner of parked property for federal income tax purposes during a reverse exchange?
3. What timing, documentation, and reporting requirements must be met for reverse exchange parking arrangements to receive safe harbor treatment?

## Decision

- The IRS established a safe harbor under which it will not challenge (1) the classification of property as replacement or relinquished property for § 1031 purposes and (2) the treatment of the EAT as beneficial owner, if the property is held in a QEAA meeting specified requirements.
- The safe harbor is optional and non-exclusive; failure to meet it removes assurance of non-challenge but does not automatically disqualify a transaction from § 1031 treatment.
- The safe harbor imposes a 45-day identification period and a 180-day completion period measured from the date the EAT acquires qualified indicia of ownership of the parked property.
- The procedure permits certain non–arm’s-length arrangements (e.g., leases, guarantees, management agreements, options) between the taxpayer and EAT during the QEAA period without disqualifying safe harbor treatment, provided the QEAA requirements are satisfied.

## Legal Principles

- If QEAA conditions are met, the IRS will not challenge the EAT’s status as beneficial owner of the parked property for federal income tax purposes during the QEAA period.
- A QEAA generally requires: (1) the EAT to hold qualified indicia of ownership (including through a disregarded entity), (2) taxpayer bona fide intent that the property is part of a § 1031 exchange, (3) a written QEAA executed within five business days of the EAT’s acquisition, and (4) consistent federal tax reporting by the parties.
- The taxpayer must identify the corresponding property within 45 days after the EAT acquires qualified indicia of ownership, using identification methods consistent with § 1031 deferred exchange rules.
- The exchange must be completed within 180 days after the EAT acquires qualified indicia of ownership, by transferring parked replacement property to the taxpayer or transferring parked relinquished property to a third-party buyer.
- Outside the safe harbor, ownership and § 1031 qualification remain governed by general federal income tax principles, including facts-and-circumstances analysis of economic benefits and burdens.

## Conclusion

Rev. Proc. 2000-37 provides an IRS safe harbor for reverse § 1031 exchanges using a QEAA, conditioning non-challenge treatment on documented EAT parking arrangements, consistent reporting, and strict 45-day identification and 180-day completion deadlines, while leaving non-safe-harbor transactions to general § 1031 and ownership rules.


Rev. Proc. 2000-37, 2000-2 C.B. 308 (2000)