1. What is a Like-Kind Exchange?
2. What are the requirements for a valid exchange?
3. What assets qualify for a Like-Kind Exchange?
4. Is my contract with Ritchie Bros affected by my decision to put my assets in a Like-Kind Exchange program?
5. Do I need to sign up for a Like-Kind Exchange program before my asset(s) are sold?
6. How much time do I have to complete my LKE?
7. What are the benefits of exchanging v. selling?
8. Is my company's money safe with Accruit?
9. Is Accruit's process secure?
10. When can I take money out of the exchange account?
11. What is a Qualified Intermediary (QI)?
12. What is safe harbor?
13. What is constructive receipt?
14. Are LKEs approved by the IRS?
15. Is Accruit different than a tax advisor or accountant?

1. What is a Like-Kind Exchange?
A Section 1031 Like-Kind Exchange (LKE) is the deferral of taxes on the sale of personal property or real estate when acquiring like-kind assets. LKEs are governed by Section 1031 of the Internal Revenue Code and Section 1.1031 of the Treasury Regulations.

2. What are the requirements for a valid exchange?

• Qualifying Property - Certain types of property are specifically excluded from Section 1031 treatment, however, if property (real or personal) is not specifically excluded, it can qualify for tax-deferred treatment.
• Proper Purpose - Both the relinquished property (sold equipment) and replacement property (new equipment) must be held for productive use in a trade or business or for investment.
• Like-Kind - Replacement property acquired in an exchange must be "like-kind" to the property being relinquished. Personal property that is relinquished must be either like-kind or like-class to the personal property which is acquired. Property located outside the United States is not like-kind to property located in the United States.
• Exchange Requirement - The relinquished property must be exchanged for other property, rather than sold for cash and using the proceeds to buy the replacement property. Most deferred exchanges are facilitated by Qualified Intermediaries, who assist the taxpayer in meeting the requirements of Section 1031.
• Timeline – From the date of sale on the relinquished property to the date the taxpayer takes possession of replacement property, no more than 180 days can elapse. Functionally, there is an identification at day 45 that must be made, however the entire timeline is 6 months.

3. What assets qualify for a Like-Kind Exchange?
Personal property or real estate assets used in your place of business may qualify for a Like-Kind Exchange program. Personal property refers to any asset that is not classified as real estate. Off-lease assets may also qualify for a Like-Kind Exchange program. Assets must be of a similar type but need not be of the same quality or age.

4. Is my contract with Ritchie Bros affected by my decision to put my assets in a Like-Kind Exchange program?
No, your contract with Ritchie Bros. does not change. You will be required to execute an agreement with Accruit for the purposes of putting your assets in a Like-Kind Exchange program and you will notify Ritchie Bros. that you are doing an LKE. These tasks are easily accomplished online and by fax. Once an agreement is signed, there is no obligation to do an exchange until the sales proceeds are received by Accruit.

5. Do I need to sign up for a Like-Kind Exchange program before my asset(s) are sold?
Yes, an exchange agreement with Accruit must be signed prior to asset disposal. Pursuant to the safe harbor statutes of Section 1031 of the Internal Revenue Code, you must notify buyers of your Like-Kind Exchange program prior to sale.

6. How much time do I have to complete my LKE?
You have up to 180 days from sale date of your original property to purchase replacement property.

7. What are the benefits of exchanging v. selling?
A 1031 exchange is one of the few techniques available to postpone or potentially eliminate taxes due on the sale of qualifying properties.

• By deferring the tax, you have more money available to invest in other assets (equipment). In effect, you receive an interest free loan from the federal government, in the amount you would have paid in taxes.

• Any gain from depreciation recapture is postponed.

• You can acquire and dispose of assets to reallocate your investment portfolio without paying tax on any gain.

8. Is my company's money safe with Accruit?
Funds sent to Accruit in the course of executing an exchange are deposited directly to escrow accounts held in the Trust Departments of major financial institutions. Additionally, Accruit holds significant bonds and Errors and Omissions insurance.

While open to other alternatives (e.g. ACH), Accruit currently receives and sends funds by means of secure bank-to-bank wire transfers or checks. Our preferred option is wires, which minimize the physical handling of client funds and increase overall security.

Escrowed funds are currently invested in a AAA rated (S&P) Treasury money market fund that invests primarily in short term Repurchase Agreements and Treasuries. Principal is protected by the short-term nature of the fund's investments (average maturity 25 days), but yields vary with the market. Interest is calculated daily and accrued monthly.

9. Is Accruit's process secure?
Accruit takes security seriously. Accruit conducts regular security audits and in-depth system reviews to ensure that the system achieves the highest security and reliability standards.

Physical security of the system is provided at secure co-location facilities. These facilities are built upon a carrier-independent infrastructure that ensures built-in redundancy and fail-over solutions, providing multiple layers of physical security, redundant power supplies, highly scalable networks, and back-up systems.

10. When can I take money out of the exchange account?
Once the money is deposited into an exchange account, funds can only be withdrawn in accordance with the Regulations. The taxpayer cannot receive any money until the exchange is complete. If you want to receive a portion of the proceeds in cash, this must be done before the funds are deposited with the Qualified Intermediary.

11. What is a Qualified Intermediary (QI)?
A Qualified Intermediary is an independent party who facilitates tax-deferred exchanges pursuant to Section 1031 of the Internal Revenue Code. The QI cannot be the taxpayer or a disqualified person.

• Acting under a written agreement with the taxpayer, the QI acquires the relinquished property and transfers it to the buyer.
• The QI holds the sales proceeds, to prevent the taxpayer from having actual or constructive receipt of the funds.
• Finally, the QI acquires the replacement property and transfers it to the taxpayer to complete the exchange within the appropriate time limits.

12. What is safe harbor?
Safe harbor refers to adhering to the guidelines set forth in the regulations of the Internal Revenue Code. Safe harbor provides security to the taxpayer that by following the accepted rules the taxpayer is staying in compliance with the purpose and structure of the tax code.

13. What is constructive receipt?
Constructive receipt is when the taxpayer has the ability to receive, pledge, borrow or obtain the benefit of the exchange funds. This includes having money (or property) from the exchange credited directly to your bank account or having direct access to the sales proceeds. Being in constructive receipt of exchange funds (or property) frequently results in the disallowance of the Like-Kind Exchange thereby creating a taxable sale.

14. Are LKEs approved by the IRS?
The origins of Section 1031 Like-Kind Exchanges go back almost to the beginning of income taxation, to 1921. In recent decades, various decisions and rulings have successively reinforced the validity of Like-Kind Exchanges and extended their application to deferred exchanges (§1031) and, during 2000, to reverse exchanges (buy first, sell later (Rev. Proc. 2000-37)).

Like-Kind Exchanges are common in the real estate industry, with the Federation of Exchange Accommodators estimating that up to $100 billion in exchanges occur annually. Although they have been less common for personal property, they are nonetheless legitimate and follow the same piece of tax code.

15. Is Accruit different than a tax advisor or accountant?
Accruit is neither a tax advisor nor an accounting service. Consult your tax advisor or accountant for questions concerning your specific situation.

Accruit does not provide a legal service. Consult your attorney if you have concerns regarding specific legal issues.

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