Page 345 - Small Business IRS Training Guides

A deferred forward exchange occurs when a taxpayer transfers relinquished property and then, at a later date,

receives replacement property. This exchange often involves the use of a qualified intermediary (QI). Per

agreement with the taxpayer, a QI will “acquire” the relinquished property from the taxpayer, transfer it to a buyer,
“acquire” replacement property from a seller, and transfer it to the taxpayer. The QI will also hold the sale proceeds

from the transfer of the relinquished property until the date those funds are used to acquire the replacement property.

A reverse exchange occurs when a taxpayer “acquires” replacement property and then, at a later date, transfers
the relinquished property. Because a transaction is not an exchange if the taxpayer holds title to the replacement
property before transferring the relinquished property, a taxpayer doing a reverse exchange must use an exchange

accommodation titleholder (or EAT) to hold title to the replacement property until the taxpayer transfers the

relinquished property. Rev. Proc. 2000-37, as modified by Rev. Proc. 2004-51. This is called a “parking
arrangement” because the replacement property is “parked” with an EAT.

3. Regarding deferred forward exchanges and reverse exchanges, ensure that the following requirements are met:

a. In a deferred forward exchange, the replacement property must be identified within 45 days of the day
the taxpayer transferred the relinquished property. Replacement property received within the 45-day

identification period is considered to have been identified within the 45-day period. In a reverse exchange,
the taxpayer must identify relinquished property within 45 days of the day the taxpayer parked the

replacement property with an EAT. Relinquished property transferred within the 45-day period is considered
to have been identified within the 45-day period.

b. In a deferred forward exchange, a taxpayer must receive the replacement property(s) within 180 days of

the transfer of the relinquished property or, if earlier, by the due date of the income tax return (including
extensions) for the taxable year during which the taxpayer first transferred relinquished property. In a
reverse exchange, the taxpayer must transfer relinquished property within 180 days of the day the

replacement property was parked with an EAT or, if earlier, by the due date of the income tax return

(including extensions) for the taxable year during which the taxpayer first parked replacement property
with the EAT.

IRC § 1031(a)(3) & Treas. Reg. § 1.1031(k)-1.

73233-102 13303-7 Tax Cuts and Jobs Act