Advance Copy of
Revenue Procedure 2000-37

Caveat: The following information came from sources believed to be reliable. However, the material which follows should be treated as unofficial, and, for the sake of safety, should not be relied upon at this time. The most reliable sources of information are those which are official government sources of information. This page is not an official government publication and so should be treated as hearsay at this time.

Attached is an advance copy of Revenue Procedure 2000-37 describing property held for productive use in trade or business or for investment.
It will appear in Internal Revenue Bulletin 2000-40, dated Oct. 2, 2000.
THIS IS A COMPUTER SCANNED DOCUMENT AND MAY CONTAIN MINOR SCANNING ERRORS

Part HI Administrative, Procedural, and Miscellaneous

26 CFR 1.1031(a)-1: Property held for productive use in trade or business
or for investment; 1.1031(k)-1: Treatment of deferred exchanges.

Rev. Proc. 2000-37

SECTION 1. PURPOSE

This revenue procedure provides a safe harbor under which the Internal
Revenue Service will not challenge (a) the qualification of property as
either "replacement property" or "relinquished property" (as defined in
§ 1.1031(k)-1(a) of the Income Tax Regulations) for purposes of § 1031
of the Internal Revenue Code and the regulations thereunder or (b) the
treatment of the "exchange accommodation titleholder" as the beneficial
owner of such property for federal income tax purposes, if the property
is held in a "qualified exchange accommodation arrangement" (QEAA), as
defined in section 4.02 of this revenue procedure.

SECTION 2. BACKGROUND

.01 Section 1031(a)(1) provides that no gain or loss is recognized on
the exchange of property held for productive use in a trade or business
or for investment if the property is exchanged solely for property of
like kind that is to be held either for productive use in a trade or business
or for investment.

.02 Section 1031(a)(3) provides that property received by the taxpayer
is not treated as like-kind property if it: (a) is not identified as property
to be received in the exchange on or before the day that is 45 days after
the date on which the taxpayer transfers the relinquished property; or
(b) is received after the earlier of the date that is 180 days after the
date on which the taxpayer transfers the relinquished property, or the
due date (determined with regard to extension) for the transferor's federal
income tax return for the year in which the transfer of the relinquished
property occurs.

.03 Determining the owner of property for federal income tax purposes
requires an analysis of all of the facts and circumstances. As a general
rule, the party that bears the economic burdens and benefits of ownership
will be considered the owner of property for federal income tax purposes.
See Rev. Rul. 82-144, 1982-2 C.B. 34.

.04 On April 25, 1991, the Treasury Department and the Service promulgated
final regulations under § 1.1031(k)-1 providing rules for deferred like-kind
exchanges under §1031(a)(3). The preamble to the final regulations states
that the deferred exchange rules under § 1031(a)(3) do not apply to reverse-Sta
rker exchanges (i.e., exchanges where the replacement property is acquired
before the relinquished property is transferred) and consequently that
the final regulations do not apply to such exchanges. T.D. 8346, 1991-1
C.B. 150, 15k see Starker v. United States, 602 F.2d 1341 (91h Cir. 1979).
However, the preamble indicates that Treasury and the Service will continue
to study the applicability of the general rule of § 1031(a)(1) to these
transactions. T.D. 8346, 1991-1 C.B. 150, 151.

.05 Since the promulgation of the final regulations under § 1.1031(k)-1,
taxpayers have engaged in a wide variety of transactions, including so-called
"parking" transactions, to facilitate reverse like-kind exchanges. Parking
transactions typically are designed to "park" the desired replacement
property with an accommodation party until such time as the taxpayer arranges
for the transfer of the relinquished property to the ultimate transferee
in a simultaneous or deferred exchange. Once such a transfer is arranged,
the taxpayer transfers the relinquished property to the accommodation
party in exchange for the replacement property, and the accommodation
party then transfers the relinquished property to the ultimate transferee.
In other situations, an accommodation party may acquire the desired replacement
property on behalf of the taxpayer and immediately exchange such property
with the taxpayer for the relinquished property, thereafter holding the
relinquished property until the taxpayer arranges for a transfer of such
property to the ultimate transferee. In the parking arrangements, taxpayers
attempt to arrange the transaction so that the accommodation party has
enough of the benefits and burdens relating to the property so that the
accommodation party will be treated as the owner for federal income tax
purposes.

.06 Treasury and the Service have determined that it is in the best interest
of sound tax administration to provide taxpayers with a workable means
of qualif5'ing their transactions under § 1031 in situations where the
taxpayer has a genuine intent to accomplish a like-kind exchange at the
time that it arranges for the acquisition of the replacement property
and actually accomplishes the exchange within a short time thereafter.
Accordingly, this revenue procedure provides a safe harbor that allows
a taxpayer to treat the accommodation party as the owner of the property
for federal income tax purposes, thereby enabling the taxpayer to accomplish
a qualifying like-kind exchange.

SECTION 3. SCOPE

.01 Exclusivity. This revenue procedure provides a safe harbor for the
qualification under § 1031 of certain arrangements between taxpayers and
exchange accommodation titleholders and provides for the treatment of
the exchange accommodation titleholder as the beneficial owner of the
property for federal income tax purposes. These provisions apply only
in the limited context described in this revenue procedure. The principles
set forth in this revenue procedure have no application to any federal
income tax determinations other than determinations that involve arrangements
qualifying for the safe harbor.

.02 No inference. No inference is intended with respect to the federal
income tax treatment of arrangements similar to those described in this
revenue procedure that were entered into prior to the effective date of
this revenue procedure. Further, the Service recognizes that "parking"
transactions can be accomplished outside of the safe harbor provided in
this revenue procedure. Accordingly, no inference is intended with respect
to the federal income tax treatment of "parking" transactions that do
not satisfy the terms of the safe harbor provided in this revenue procedure,
whether entered into prior to or after the effective date of this revenue
procedure.

.03 Other issues. Services for the taxpayer in connection with a person's
role as the exchange accommodation titleholder in a QEAA shall not be
taken into account in determining whether that person or a related person
is a disqualified person (as defined in § 1.1031(k)-1(k)). Even though
property will not fail to be treated as being held in a QEAA as a result
of one or more arrangements described in section 4.03 of this revenue
procedure, the Service still may recast an amount paid pursuant to such
an arrangement as a fee paid to the exchange accommodation titleholder
for acting as an exchange accommodation titleholder to the extent necessary
to reflect the true economic substance of the arrangement. Other federal
income tax issues implicated, but not addressed, in this revenue procedure
include the treatment, for federal income tax purposes, of payments described
in section 4.03(7) and whether an exchange accommodation titleholder may
be precluded from claiming depreciation deductions as a dealer) with respect
to the relinquished property or the replacement property.

.04 Effect of Noncompliance. If the requirements of this revenue procedure
are not satisfied (for example, the property subject to a QEAA is not
transferred within the time period provided), then this revenue procedure
does not apply. Accordingly, the determination of whether the taxpayer
or the exchange accommodation titleholder is the owner of the property
for federal income tax purposes, and the proper treatment of any transactions
entered into by or between the parties, will be made without regard to
the provisions of this revenue procedure.

SECTION 4. QUALIFIED EXCHANGE ACCOMMODATION ARRANGEMENTS

.01 Generally. The Service will not challenge the qualification of property
as either "replacement property" or "relinquished property" (as defined
in § 1.1031(k)-1(a)) for purposes of § 1031 and the regulations thereunder,
or the treatment of the exchange accommodation titleholder as the beneficial
owner of such property for federal income tax purposes, if the property
is held in a QEAA.

.02 Qualified Exchange Accommodation Arrangements. For purposes of this
revenue procedure, property is held in a QEAA if all of the following
requirements arc met:

(1) Qualified indicia of ownership of the property is held by a person
(the "exchange accommodation titleholder") who is not the taxpayer or
a disqualified person and either such person is subject to federal income
tax or, if such person is treated as a partnership or S corporation for
federal income tax purposes, more than 90 percent of its interests or
stock are owned by partners or shareholders who are subject to federal
income tax. Such qualified indicia of ownership must be held by the exchange
accommodation titleholder at all times from the date of acquisition by
the exchange accommodation titleholder until the property is transferred
as described in section 4.02(5) of this revenue procedure. For this purpose,
"qualified indicia of ownership" means legal title to the property, other
indicia of ownership of the property that are treated as beneficial ownership
of the property under applicable principles of commercial law (e.g., a
contract for deed), or interests in an entity that is disregarded as an
entity separate from its owner for federal income tax purposes (e.g.,
a single member limited liability company) and that holds either legal
title to the property or such other indicia of ownership;

(2) At the time the qualified indicia of ownership of the property is
transferred to the exchange accommodation titleholder, it is the taxpayer's
bona fide intent that the property held by the exchange accommodation
titleholder represent either replacement property or relinquished property
in an exchange that is intended to qualify for nonrecognition of gain
(in whole or in part) or loss under § 1031;

(3) No later than five business days after the transfer of qualified indicia
of ownership of the property to the exchange accommodation titleholder,
the taxpayer and the exchange accommodation titleholder enter into a written
agreement (the "qualified exchange accommodation agreement") that provides
that the exchange accommodation titleholder is holding the property for
the benefit of the taxpayer in order to facilitate an exchange under §
1031 and this revenue procedure and that the taxpayer and the exchange
accommodation titleholder agree to report the acquisition, holding, and
disposition of the property as provided in this revenue procedure. The
agreement must specify that the exchange accommodation titleholder will
be treated as the beneficial owner of the property for all federal income
tax purposes. Both parties must report the federal income tax attributes
of the property on their federal income tax returns in a manner consistent
with this agreement;

(4) No later than 45 days after the transfer of qualified indicia of ownership
of the replacement property to the exchange accommodation titleholder,
the relinquished property is properly identified. Identification must
be made in a manner consistent with the principles described in § 1.1031(k)-1(c
). For purposes of this section, the taxpayer may properly identify alternative
and multiple properties, as described in § 1.1031(k)-1(c)(4);

(5) No later than 180 days after the transfer of qualified indicia of
ownership of the property to the exchange accommodation titleholder, (a)
the property is transferred (either directly or indirectly through a qualified
intermediary (as defined in § 1.1031(k)-1(g)(4))) to the taxpayer as replacemen
t property; or (b) the property is transferred to a person who is not
the taxpayer or a disqualified person as relinquished property; and

(6) The combined time period that the relinquished property and the replacement
property are held in a QEAA does not exceed 180 days.

.03 Permissible Agreements. Property will not fail to be treated as being
held in a QEAA as a result of any one or more of the following legal or
contractual arrangements, regardless of whether such arrangements contain
terms that typically would result from arm's length bargaining between
unrelated parties with respect to such arrangements:

(1) An exchange accommodation titleholder that satisfies the requirements
of the qualified intermediary safe harbor set forth in § 1. 103 1(k)-i
(g)(4) may enter into an exchange agreement with the taxpayer to serve
as the qualified intermediary in a simultaneous or deferred exchange of
the property under § 1031;

(2) The taxpayer or a disqualified person guarantees some or all of the
obligations of the exchange accommodation titleholder, including secured
or unsecured debt incurred to acquire the property, or indemnifies the
exchange accommodation titleholder against costs and expenses;

(3) The taxpayer or a disqualified person loans or advances funds to the
exchange accommodation titleholder or guarantees a loan or advance to
the exchange accommodation titleholder;

(4) The property is leased by the exchange accommodation titleholder to
the taxpayer or a disqualified person;

(5) The taxpayer or a disqualified person manages the property, supervises
improvement of the property, acts as a contractor, or otherwise provides
services to the exchange accommodation titleholder with respect to the
property;

(6) The taxpayer and the exchange accommodation titleholder enter into
agreements or arrangements relating to the purchase or sale of the property,
including puts and calls at fixed or formula prices, effective for a period
not in excess of 185 days from the date the property is acquired by the
exchange accommodation titleholder; and

(7) The taxpayer and the exchange accommodation titleholder enter into
agreements or arrangements providing that any variation in the value of
a relinquished property from the estimated value on the date of the exchange
accommodation titleholder's receipt of the property be taken into account
upon the exchange accommodation titleholder's disposition of the relinquished
property through the taxpayer's advance of funds to, or receipt of funds
from, the exchange accommodation titleholder.

.04 Permissible Treatment. Property will not fail to be treated as being
held in a QEAA merely because the accounting, regulatory, or state, local,
or foreign tax treatment of the arrangement between the taxpayer and the
exchange accommodation titleholder is different from the treatment required
by section 4.02(3) of this revenue procedure.

SECTION 5. EFFECTIVE DATE

This revenue procedure is effective for QEAAs entered into with respect
to an exchange accommodation titleholder that acquires qualified indicia
of ownership of property on or after September 15, 2000.

SECTION 6. PAPERWORK REDUCTION ACT

The collections of information contained in this revenue procedure have
been reviewed and approved by the Office of Management and Budget in accordance
with the Paperwork Reduction Act (44 U.S.C. 3507) under control number
1545-1701. An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of information
displays a valid control number.

The collections of information are contained in section 4.02 of this revenue
procedure, which requires taxpayers and exchange accommodation titleholders
to enter into a written agreement that the exchange accommodation titleholder
will be treated as the beneficial owner of the property for all federal
income tax purposes. This information is required to ensure that both
parties to a QEAA treat the transaction consistently for federal tax purposes.
The likely respondents are businesses and other for-profit institutions,
and individuals.

The estimated average annual burden to prepare the agreement and certification
is two hours. The estimated number of respondents is 1,600, and the estimated
total annual reporting burden is 3,200 hours.

The estimated annual frequency of responses is on occasion.

Books and records relating to a collection of information must be retained
as long as their contents may become material in the administration of
any internal revenue law. Generally, tax returns and tax return information
are confidential, as required by 26 U.S.C. 6103.

DRAFTING INFORMATION

The principal author of this revenue procedure is J. Peter Baumgarten
of the Office of Associate Chief Counsel (Income Tax and Accounting).
For further information regarding this revenue procedure, contact Mr.
Baumgarten on (202) 622-4950 (not a toll-free call).