IRS Clarifies Position on Bartell Reverse Exchanges

We recently reported on a case in which the Tax Court held that a reverse exchange qualified for tax deferral even though the accommodator held the replacement property for 17 months and did not have the benefits and burdens of ownership.  In other words, the transaction didn’t qualify for a safe harbor reverse exchange under Revenue Procedure 2000-37 but the parties also did not attempt to create benefits and burdens of ownership to show that the accommodator should be considered the owner for tax purposes.  This case (Estate of George H. Bartell, Jr. v. Commissioner, 147 T.C. 140 (2016)) arose out of a transaction that was structured before Revenue Procedure 2000-37. 

 

The IRS just released a notice that, although it did not appeal the decision, it does not agree with the ruling in this case.  That means that taxpayers who set up this type of reverse, often called a Bartell transaction, should expect the IRS to challenge it. 

 

This IRS notice is contained in the Action on Decision published in the Internal Revenue Bulletin 2017-33 (August 14, 2017). 

Read more about safe harbor reverse exchanges.