Rp 2000-37

Part III. 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.

October 2, 2000

.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-Starker 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, 151;
see Starker v. United States, 602 F.2d 1341
(9th 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 tax-

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payers with a workable means of qualifying 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

2000–40 I.R.B.

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 (e.g., 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 are met:
(1) Qualified indicia of ownership of
the property is held by a person (the “exchange accommodation titleholder”) who

2000–40 I.R.B.

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 in-

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come 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 replacement 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 §1.1031(k)–1(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;

October 2, 2000

(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

October 2, 2000

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 at (202)
622-4950 (not a toll-free call).

26 CFR 601.204: Changes in accounting periods
and in methods of accounting.
(Also Part I, §§ 446, 481; 1.446–1, 1.481–1.)

Rev. Proc. 2000–38
SECTION 1. PURPOSE
This revenue procedure provides three
permissible methods of accounting for
distributor commissions (as defined in § 2
below). A taxpayer may change to or
adopt any of the three methods. This revenue procedure provides procedures for a
taxpayer to obtain consent from the Commissioner of Internal Revenue to change
to any of the three methods of accounting

310

for distributor commissions, including
rules relating to the limitations, terms, and
conditions the Commissioner deems necessary to make the change.
SECTION 2. DEFINITIONS
Under Rule 12b–1 (17 C.F.R. § 270.
12b–1), an open-end regulated investment
company (“mutual fund”) may adopt, for
one or more classes of its shares, a plan
that permits it to use fund assets to pay a
fee to cover distribution costs of fund
shares (“distribution fee”). For purposes
of this revenue procedure, the term “distributor commissions” means commissions paid or incurred by a distributor of a
mutual fund on the sale of mutual fund
shares for which the distributor is to receive a distribution fee from the mutual
fund and, in some cases, a contingent deferred sales charge from the investor in
future taxable year(s) (typically referred
to in the mutual fund industry as “B
shares”). Distributor commissions do not
include commissions paid or incurred on
the sale of mutual fund shares for which
the distributor is to receive a distribution
fee and, in some cases, a contingent deferred sales charge in future taxable years
and will make commission payments to
the selling broker in an amount equal to
the amount it receives each year that the
shares remain outstanding (typically referred to in the mutual fund industry as “C
shares”).
SECTION 3. BACKGROUND
.01 Mutual funds generally distribute
new shares to the public through a distributor. If an investor purchases mutual fund
shares through a broker, either the investor or the distributor pays the brokerage commissions. If the distributor pays
the brokerage commissions (i.e., distributor commissions), the distributor typically
recovers this cost by collecting from the
mutual fund a distribution fee in accordance with Rule 12b–1 and, in some
cases, by receiving a sales charge from
the investor if the shares are redeemed
within a specified period of time.
.02 Under § 446, the Commissioner
has broad authority to determine whether
a method of accounting clearly reflects income. Under § 446(b), if a taxpayer’s
method of accounting does not clearly reflect income, the computation of taxable
income must be made under a method

2000–40 I.R.B.