Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/504576
15 May | June | 2015 CCIM.com North Central and then transferred the equipment to North Central via Accruit. Butler Machinery charged North Central the same amount that Butler Machinery paid for the equipment. Butler Machinery's use of LKE trans- actions in this fashion facilitated favor- able financing terms from Caterpillar (referred to as 'DRIS' f nancing terms). Caterpillar advised Butler Machinery before it established either North Cen- tral or the LKE program that such a transaction structure would enable But- ler Machinery 'to take full advantage of [Caterpillar's] DRIS payment terms.' T e DRIS payment terms, among other things, gave Butler Machinery up to six months from the date of the invoice to pay Caterpillar for North Central's new equipment. During that time, Butler Machinery could use the sales proceeds it received from Accruit for essentially whatever business purposes it wanted, such as paying bills or payroll. In other words, Butler Machinery essentially received an up-to-six-month, interest- free loan from each exchange. North Central claimed nonrecognition treatment of gains under Section 1031 on 398 transactions occurring over a three- year period. T e IRS said the transactions did not qualify for nonrecognition treatment because North Central structured the trans- actions to circumvent related-party restric- tions found in Section 1031(f). T e court said that, clearly, the taxpayers were aware of Section 1031's limits regard- ing related parties. T e court considered the cash that Butler received as the result of each exchange, the complexity of the trans- actions, and the fact that North Central and Butler could have exchanged the property directly; however, to qualify for nonrec- ognition of gain under Section 1031 (f ), they would have had to hold the exchanged property for two years. T e court concluded that the taxpayers structured the transac- tions with tax motive in mind to attempt to circumvent the restrictions under Sec- tion 1031(f ). T e appellate court af rmed the lower court's decision that the taxpayers could not employ the deferral under Sec- tion 1031. CCIMs and their clients must be aware of the special limitations in exchanges if the parties are related as def ned in Section 1031 (f). Further, using entities that appar- ently have little purpose, aside from trying to circumvent the limits on related party exchanges, will not solve the enigma for the related party clients that are attempting to employ the benef ts of Section 1031. Mark Lee Levine, CCIM, JD, LLM (tax), is a pro- fessor and past director of the Burns School of Real Estate and Construction Management, Daniels College of Business, University of Den- ver. Contact him at mlevine@du.edu. Tell Your Clients Who You Really Are. Want to make sure your clients and potential clients know you're a CCIM? T en af x your business card to the latest copy of Commercial Investment Real Estate magazine and leave it with them af er your next meeting. Or mail a copy with a personalized note. Bulk copies of CIRE are available to CCIM designees at greatly reduced prices for use in their personal marketing campaigns. Current Issue 1-Year Bulk Subscription ( 6 Issues ) 5 copies $15 $90 10 copies $25 $150 30 copies $60 $360 Limited quantities available, so call today to place your order. Shipping fees will be added to non-U.S. orders. Call 800-621-7027, ext. 4482.