Chapter § 55.7 THREE-PARTY EXCHANGES

• Jurisdiction: Oregon

§ 55.7 THREE-PARTY EXCHANGES

The discussion in § 55.7-1 to § 55.7-6 regarding three-party exchanges points out a number of issues common to all multiparty exchanges, including general judicial tolerance to highly structured exchange transactions, direct deeding, and assignments of earnest-money agreements.

§ 55.7-1 Structuring Three-Party Exchanges

Rarely do two people exchange their properties directly. A three-party exchange is typically structured in one of three ways:

(1) The seller sells relinquished property to the buyer. In this structure, the exchanger exchanges the relinquished property with the seller for the replacement property, which the seller owns. Next, as part of a single and simultaneous escrow, the seller sells the relinquished property to the buyer for cash.

(2) The buyer acquires the replacement property from the seller, and the buyer, as part of a single escrow, purchases the replacement property from the seller for cash. Next, the buyer exchanges the replacement property with the exchanger for the relinquished property.

(3) The buyer acquires the relinquished property from the exchanger and through the accommodator, and the exchanger, through the accommodator, acquires the replacement property from the seller. If an accommodator is used, neither the buyer nor the seller is involved in taking title to or conveying property other than his or her own.

§ 55.7-2 Judicial Latitude in Structuring Exchanges

There are many examples of tricky structuring that must be negotiated to complete exchanges, particularly reverse exchanges and build-to-suit exchanges. Fortunately the general attitude of the courts is that "[t]axpayers have been allowed wide latitude in structuring [tax-free exchange] transactions." Swaim v. United States, 651 F2d 1066, 1069 (5th Cir 1981). See Biggs v. C.I.R., 632 F2d 1171 (5th Cir 1980); Maxwell v. United States, Nos 86-8446-CIV-ZLOCH, 86-8447-CIV-ZLOCH, 1988 WL 142153 (SD Fla July 29, 1988). The courts have allowed significant involvement by the exchanger without finding that the accommodator was the agent of the exchanger. See Fredericks v. C.I.R., 67 TCM (CCH) 2005 (1994) (accommodator not held as agent even though it was wholly owned subsidiary of exchanger); 124 Front St. Inc. v. Comm'r of Internal Revenue, 65 TC 6 (1975) (exchanger advanced funds to accommodator to purchase replacement property); J. H. Baird Pub. Co. v. C.I.R., 39 TC 608 (1962) (exchanger oversaw accommodator's construction of replacement...