Six-Month Limit on Reverse Exchanges Will Hurt Conservation Efforts, Agency Says

[1] It has come to our attention that the Internal Revenue Service may soon issue the first and final guidance creating a six- month limitation for "reverse exchanges" of like-kind property for tax-deferred treatment under section 1031 of the Internal Revenue Code. We respectfully urge you to defer the issuance of such guidance until the potential unintended adverse impacts on public transactions is fully considered.

[2] The exchange of like-kind property for tax deferred treatment as currently permitted by the Internal Revenue Service is an important tool to entities involved in conservation land acquisitions. These kinds of transactions result in important public benefits and bring into public ownership lands which might otherwise remain out of reach to the public. The current statute governing such transactions allows for the often time-consuming processes public agencies must undertake in consummating these land exchanges. The approvals, appraisals, and appropriation processes involved in such transactions can take years.

[3] The proposed amendments to the guidance for reverse exchanges of like-kind property will likely chill these important land transfers by making it impossible for public agencies to conform to the IRS's new requirements, thereby discouraging sellers from arranging such transactions with public entities to begin with.

[4] One example of this kind of reverse exchange of like-kind property in California involves the acquisition of * * * acres of * * * property located in * * *. The * * * a non-profit land conservation agency, is working with the State of California to acquire the subject property from * * * in a reverse exchange, structured transaction. The six month time limit, if imposed, will likely make this transaction an impossibility.

[5] We respectfully request that you postpone the issuance of final guidance until the potential threat to legitimate, publically beneficial land transactions has been addressed during a public comment period. In the alternative, we request that you consider exempting public agencies from the six month time period and instead allow a longer period of time within which to complete the transaction. Thank you for your consideration of our comments.

Sincerely,