WHAT SAFE HARBORS EXIST IN THE DEFERRED EXCHANGE AREA?
For many years, the rule of actual and constructive receipt has been unclear as applied to exchanges. To clarify this area, the regulations provide four safe harbors which can be used without the risk of the IRS arguing that there has been the actual or constructive receipt of non like-kind property: A. Safe Harbor #1 The obligation of the exchangor’s transferee (i.e. the buyer or intermediary) to complete the deferred exchange can be secured or guaranteed by: • A mortgage, deed of trust, or other security interest in property (other than cash or a cash equivalent), • A standby letter of credit which satisfies all of the requirements of Reg Section 15A.453-1(b)(3)(iii) and which does not allow the taxpayer to draw on the letter of credit except on default of the transferee’s obligation to transfer like-kind replacement property, or • A guarantee of a third party B. Safe Harbor #2 The obligation of the exchangor’s transferee to complete the deferred exchange may be secured by cash or a
