To Back up an Intended 1031 Exchange
(Note: Section 1031 of the Internal Revenue Code allows only 45 days after the relinquished property is sold in which to identify the replacement property, and only 180 days in which to acquire the identified replacement property, for the taxable gain on the relinquished property to be deferred. If the exchangor fails to satisfy those requirements, the exchangor’s disposition of the relinquished property becomes an immediately taxable sale. Proper and timely use of a collateralized installment sale can provide the would-be exchangor with alternate tax deferral if the requirements of § 1031 are not met.)
A
Exchangor contracts with Qualified Intermediary (“QI”, a § 1031 company) for Exchange #1.
B
1. S.Crow Collateral Corp. contracts with QI to purchase the seller’s property on a collateralized installment contract.
2. S.Crow Collateral Corp. contracts with QI for Exchange #2, which if successful will pay off the installment contract.
3. QI, for S.Crow Collateral Corp., re-sells the property for cash, which is placed in escrow at closing.
2. S.Crow Collateral Corp. contracts with QI for Exchange #2, which if successful will pay off the installment contract.
3. QI, for S.Crow Collateral Corp., re-sells the property for cash, which is placed in escrow at closing.
C
Exchangor timely identifies replacement property.
Exchangor fails to identify replacement property in time or fails to close in time.
QI buys replacement property.
D
The escrow holder pays the cash proceeds to the bank or financial services firm selected or approved by the seller.
QI timely conveys replacement property to Exchangor. That completes the Exchange #2 and pays the installment contract in full.
E
The financial services firm purchases or issues, in the name of S.Crow Collateral Corp.’s “vault” company, such categories of marketable securities, financial instruments or other assets as the seller agrees to accept as collateral, all of which remains under the control of the financial services firm.
F
The financial services firm makes the installment payments to the seller on S.Crow Collateral Corp.’s behalf, from the collateral assets or their earnings, and then pays the purchase price in full at the time specified in the installment contract.