In a reverse exchange structured under the safe harbor protection of Revenue Procedure 2000-37 the entity used to facilitate a reverse exchange is referred to as an Accommodation Exchange Titleholder (“E.A.T.”) and the property or asset held by the EAT is often referred to as the “parked property”, in this case the replacement property. The EAT will usually form a special purpose entity (“SPE”) to hold title to the parked property. Under a “Qualified Exchange Accommodation Agreement (“QEAA”), the contract document is between the Exchangor (Taxpayer); the Holding Entity (usually an LLC structure); and the EAT. To complete the exchange the holding entity acquires and transfers the replacement property and transfers the relinquished property back to the Lender in a deed in lieu of foreclosure. Under Rev. Proc. 2000-37, this must be accomplished within 180 days of the acquisition of the replacement property; but in a pre-foreclosure context, this must be accomplished in a more timely manner to accommodate the objectives of all parties.
Investors and taxpayers who are facing the prospect of a foreclosure on a commercial investment asset can utilize a tax deferral strategy which contemplates structuring a reverse-exchange with the assistance of Replacement Intermediary.