Page 105 - Virtual Currencies

12:10 - 7-Feb-2023
Page 14 of 42
Fileid: … tions/p544/2022/a/xml/cycle03/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
for “50%”) as a person that has provided invest- amounts held in the qualified escrow account or that person (that is, by direct deed from
ment banking or brokerage services to the tax- qualified trust even if you receive money or un- you).
payer within the 2-year period ending on the like property directly from a party to the ex- • An intermediary is treated as acquiring and
date of the transfer of the first of the relin- change. transferring replacement property if the in-
quished properties. For this purpose, a bank af- An escrow account is a qualified escrow ac- termediary (either on its own behalf or as
filiate is a corporation whose principal activity is count if both of the following conditions are met. the agent of any party to the transaction)
rendering services to facilitate exchanges of • The escrow holder is neither you nor a dis- enters into an agreement with the owner of
property intended to qualify for nonrecognition qualified person. See Disqualified persons, the replacement property for the transfer of
of gain under section 1031 of the Internal Reve- earlier. that property and, pursuant to that agree-
nue Code and all of whose stock is owned by • The escrow agreement expressly limits ment, the replacement property is transfer-
either a bank or a bank-holding company. your rights to receive, pledge, borrow, or red to you (that is, by direct deed to you).
otherwise obtain the benefits of the cash or An intermediary is treated as entering into
Safe Harbors Against Actual and cash equivalent held in the escrow ac- an agreement if the rights of a party to the
Constructive Receipt in Deferred count. For more information on how to sat- agreement are assigned to the intermediary
Exchanges isfy this condition, see Additional restric- and all parties to that agreement are notified in
tions on safe harbors, later. writing of the assignment by the date of the rele-
The following arrangements will not result in ac- A trust is a qualified trust if both of the fol- vant transfer of property.
tual or constructive receipt of money or unlike lowing conditions are met. The written exchange agreement must ex-
property in a deferred exchange. • The trustee is neither you nor a disqualified pressly limit your rights to receive, pledge, bor-
• Security or guarantee arrangements. person. See Disqualified persons, earlier. row, or otherwise obtain the benefits of money
• Qualified escrow accounts or qualified For purposes of whether the trustee of a or unlike property held by the qualified interme-
trusts. trust is a disqualified person, the relation- diary.
• Qualified intermediaries. ship between you and the trustee created Safe harbor method for reporting gain or
• Interest or growth factors. by the qualified trust will not be considered loss when qualified intermediary defaults.
a relationship between you and a related
Security or guarantee arrangements. You person. Generally, if a qualified intermediary is unable
to meet its contractual obligations to you or oth-
will not actually or constructively receive money • The trust agreement expressly limits your
or unlike property before you actually receive rights to receive, pledge, borrow, or other- erwise causes you not to meet the deadlines for
identifying or receiving replacement property in
the like-kind replacement property just because wise obtain the benefits of the cash or
your transferee's obligation to transfer the re- cash equivalent held by the trustee. For a deferred or reverse exchange, your transac-
tion may not qualify as a tax-free deferred ex-
placement property to you is secured or guar- more information on how to satisfy this
anteed by one or more of the following. condition, see Additional restrictions on change. In that case, any gain may be taxable
in the current year.
1. A mortgage, deed of trust, or other secur- safe harbors, later. However, if a qualified intermediary defaults
ity interest in property (other than in cash The protection against actual and construc- on its obligation to acquire and transfer replace-
or a cash equivalent). tive receipt ends when you have an immediate ment property because of bankruptcy or receiv-
2. A standby letter of credit that satisfies all ability or unrestricted right to receive, pledge, ership proceedings, and you meet the require-
borrow, or otherwise obtain the benefits of the
the following requirements. cash or cash equivalent held in the qualified es- ments of Revenue Procedure 2010-14, you
may be treated as not having actual or con-
a. Not negotiable, whether by the terms crow account or qualified trust. structive receipt of the proceeds of the ex-
of the letter of credit or under applica- change in the year of sale of the property you
ble local law; Qualified intermediary. If you transfer prop- gave up. If you meet the requirements, you can
b. Not transferable (except together with erty through a qualified intermediary, the trans- report the gain in the year or years payments (or
fer of the property given up and receipt of
the evidence of indebtedness that it like-kind property is treated as an exchange. debt relief treated as payments) are received,
using the safe harbor gross profit ratio method.
secures), whether by the terms of the This rule applies even if you receive money or
letter of credit or under applicable lo- unlike property directly from a party to the trans- See Revenue Procedure 2010-14, 2010-12
I.R.B.
IRS.gov/irb/
at
456,
available
cal law; action other than the qualified intermediary. 2010-12_IRB/ar07.html.
c. Issued by a bank or other financial in- A qualified intermediary is a person who is
Multiple-party transactions involving re-
stitution; not a disqualified person (discussed earlier) lated persons. If you transfer property given
d. Serves as a guarantee of the evi- and who enters into a written exchange agree- up to a qualified intermediary in exchange for
ment with you and, as required by that agree-
dence of indebtedness that is secured ment: replacement property formerly owned by a rela-
by the letter of credit; and • Acquires the property you give up, ted person, you may not be entitled to nonre-
e. May not be drawn on in the absence • Transfers the property you give up, cognition treatment if the related person re-
of a default in the transferee's obliga- • Acquires the replacement property, and ceives cash or unlike property for the
tion to transfer the replacement prop- • Transfers the replacement property to you. replacement property. (See Like-Kind Ex-
erty to you. For determining whether an intermediary ac- changes Between Related Persons, later.)
3. A guarantee by a third person. quires and transfers property, the following Interest or growth factors. You will not be in
rules apply. actual or constructive receipt of money or unlike
The protection against actual and construc- • An intermediary is treated as acquiring and property before you actually receive the
tive receipt ends when you have an immediate transferring property if the intermediary ac- like-kind replacement property just because you
ability or unrestricted right to receive money or quires and transfers legal title to that prop- are or may be entitled to receive any interest or
unlike property under the security or guarantee erty. growth factor in the deferred exchange. This
arrangement. • An intermediary is treated as acquiring and rule applies only if the agreement under which
transferring the property you give up if the you are or may be entitled to the interest or
Qualified escrow account or qualified trust. intermediary (either on its own behalf or as growth factor expressly limits your rights to re-
You will not actually or constructively receive the agent of any party to the transaction) ceive the interest or growth factor during the ex-
money or unlike property before you actually re- enters into an agreement with a person change period. See Additional restrictions on
ceive the like-kind replacement property just other than you for the transfer of that prop- safe harbors next.
because your transferee's obligation is secured erty to that person and, pursuant to that
by cash or cash equivalent if the cash or cash agreement, that property is transferred to Additional restrictions on safe harbors. In
equivalent is held in a qualified escrow account order to come within the protection of the safe
or qualified trust. This rule applies for the
Page 14 Chapter 1 Gain or Loss