Tax deferred exchanges lasting more than 180 days were performed for years before the IRS issued the reverse exchange safe-harbor (Rev. Proc. 2000-37) which is commonly used by investors today. Although the 180-day duration is a one of the fundamental requirements of a safe-harbor reverse exchange, exchanges than take longer than 180 days (i.e. exchanges which are “non-safe-harbor”) are not automatically invalid.* Careful transaction structuring plus correct use of investor and/or lender funding is required to achieve a strong and defensible position should a challenge occur. Fortunately the required structure is very well understood and continues to be used successfully, if infrequently.

The two fundamental uses for the non-safe harbor are to give a safe harbor reverse exchange the opportunity to be successfully completed, or to allow a property improvement project slated to take longer than 180 days to be completed within a Reverse 1031 Exchange.

Prior to executing the process on behalf of any particular client, professional Exchange Accommodators typically ask the client and the client’s tax advisor to make the following determinations:

• Does the client have a tax deferral “problem” large enough to warrant the effort and expense of a non-safe harbor exchange strategy?
• Do the financial resources and history of the client meet the joint requirements of the Lender, Investor and Exchange Accommodator for credit worthiness, ability to successfully complete the improvements, etc.
• Can the transaction be structured to achieve at least a “more likely than not” probability of successfully satisfying IRS scrutiny?

Reverse 1031 Financing Solutions (RFS) identifies sources of funding for both the first-lien loan and the outside investor/equity contribution as described above.

Reverse 1031 Financing Solutions is a niche specialist who offers funding solutions to clients of the 1031 exchange accommodator community at large. RFS’ knowledge of the 1031 field and its relationships with numerous banks and independent lenders provides the ability to identify potential funding sources and proactively educate them about the non-safe harbor exchange structure. If accepted, this shortens dramatically the turnaround time on developing a particular non-safe harbor reverse exchange funding package.
RFS is neither a direct lender nor an accommodator.

*Rev. Proc. 2000-37, Section 3.02. This applies ONLY to reverse exchanges since the parking arrangement precedes the actual 1031 exchange. )