May 2003
2003 Legislative Proposals
House Bill 972
Reverse Tax-Deferred Exchanges Available through STEC
by Sarah Friede, Legal Counsel and Vice President, Statewide Title Exchange Corporation
Statewide Title Exchange Corporation (STEC) is pleased to announce the introduction of our Reverse Tax-Deferred Exchange services. The general consensus among attorneys and taxpayers is that reverse (or "Starker") exchanges are difficult and expensive to close. We are convinced, however, that the procedure is relatively painless – provided you have the right company helping you. We have designed a series of forms and agreements that are simple to use but more importantly, we have the expertise to walk you and your clients through the necessary steps.
The IRS sanctioned reverse exchanges in September 2000 after years of confusion and provided new safe-harbor regulations. The replacement property in a reverse exchange is parked with an Exchange Accommodation Titleholder (EAT), who must be unrelated to the taxpayer and who must exhibit certain defined "qualified indicia of ownership." A written agreement must be executed within 5 days of the purchase of the replacement property, allowing a grace period for taxpayers making a last-minute decision to accomplish a reverse exchange. The taxpayer provides the funds necessary for the purchase of the replacement property but title vests in the EAT until the taxpayer sells the relinquished property. The same timing rules apply: (a) taxpayers have 45 days in which to identify property to be relinquished, and (b) 180 days from the date of the initial transaction to sell the relinquished property.
Because the EAT is treated as the owner of the replacement property for tax and environmental-liability purposes, a more detailed agreement between parties is required and fees are much higher. In many cases, fees charged are so high they scare taxpayers away from taking advantage of the new safe-harbor guidelines.
STEC has created forms and agreements that are clear and concise, and free of charge for Statewide Title, Inc.’s approved attorneys. While we are not in the business of providing tax advice to your customers, we can provide expert assistance with structuring and disbursing reverse exchanges – with fees substantially lower than many accommodation titleholders!
Call or e-mail Sarah Friede at 1-877-815-3430 or call Betsy Morgan at 1-800-821-5414 for more details. You may also log onto our Exchange website at www.1031stec.com.