Chapter § 55.11 ACCOMMODATORS

• Jurisdiction: Oregon

§ 55.11 ACCOMMODATORS

In recent years, the use of accommodators has increased dramatically. In fact, a whole industry has grown of corporations whose only job is to serve as qualified intermediaries in tax-free exchanges.

§ 55.11-1 Advantages of an Accommodator

§ 55.11-1(a) Knowledge

Many accommodators are very knowledgeable in handling exchanges. They often provide forms and advice.

§ 55.11-1(b) Modest Fees

Many accommodators charge only a modest fee for their services. The fees are generally subject to negotiation.

§ 55.11-1(c) Avoids Environmental Risks

If either the buyer or the seller takes title to any property, even for an instant, he or she can be held liable for environmental claims.

§ 55.11-2 Disadvantages of an Accommodator

§ 55.11-2(a) Lack of Capital

Accommodators are generally corporations that have very little capital. They can become insolvent or file for bankruptcy. In a bankruptcy, the cash or real estate held by the accommodator may be at risk for bankruptcy claims even after the replacement property is transferred by the accommodator to the exchanger.

In one reported case, the exchanger lost replacement property that he had received from an accommodator when the accommodator filed for bankruptcy after the exchange was completed. In re San Diego Realty Exch., Inc., 132 BR 424, 429-30 (Bankr SD Cal 1991).

The regulations force most taxpayers to use professional accommodators to hold the exchange proceeds during the pendency of a deferred exchange. These accommodators serve as limited-purpose depository institutions and often hold vast sums of money. These depositories, however, are not subject to any federal regulation or regulatory supervision.

Unless prohibited by the terms of the exchange agreement or other agreement with the accommodator, an accommodator may borrow or use exchange proceeds to cover operating expenses or for speculative investments. Even accommodators affiliated with large title-insurance companies or financial institutions may declare bankruptcy if the accommodator invests exchange proceeds in investments that become illiquid as a result of embezzlement or litigation. If an accommodator files for bankruptcy, the exchanger will likely be an unsecured creditor, and there is a risk that completed exchanges may be attacked as preferences under the Bankruptcy Act. Terrence Floyd Cuff, Several Examples of Real Estate and the Deferred Exchange Regulations, 12 Tax Mgmt Real Est J 199, 199 (Aug 1996).

In In re LandAmerica...