THE PROBLEM
In 2009 JBEC decided to move several older cranes and to purchase a new model from a local dealership. The existing cranes were fully depreciated for tax purposes, and the company anticipated a hefty tax bill upon sale.

THE ACCRUIT SOLUTION
JBEC, which had conducted several single exchanges in the past, consulted with its Accruit Client Service Manager and learned that its plans represented a very simple straightforward 1031 exchange. The CSM helped them structure the exchange, at which time they sold the relinquished assets (four Grove RT series and one Grove TMS series) at a Ritchie Bros. auction.

THE RESULTS

The net sales price at auction approached $400,000 and the combined tax rate was approximately 35%, allowing Janssen Brothers to defer recognition of a $140,000 gain. Shortly thereafter the firm applied these funds to the purchase of a new Terex RT series, which is in service today.

Janssen Brothers is based on an actual Accruit client.

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DENVER (Sept. 6, 2011) — Accruit, LLC, the nation’s leading Qualified Intermediary (QI) for Section 1031 Program Like-Kind Exchanges (LKE), has entered into a definitive agreement to acquire North Star Deferred Exchange Corp, located in Chicago, Illinois, from BMO Financial Corporation. North Star Trust Company and its affiliates will remain a part of BMO Financial Corporation. North Star Deferred Exchange and North Star Trust Company are not related to Northstar Trade Finance, Inc., another company in which BMO Financial Group maintains an interest.

Since 1997, North Star Deferred Exchange Corp (NSDE) has been a national provider of QI and Exchange Accommodation Titleholder (EAT) services for complex exchanges of both real and personal property, specializing in reverse, build-to-suit and improvement exchanges.
Section 1031 of the Internal Revenue Code enables property owners to defer taxable gain on the disposition of assets if those assets are replaced with like-kind assets. Accruit’s patented Like-Kind Exchange (LKE) process has been employed by companies in over 20 different industries to turn billions of dollars of tax liability into retained cash flow for the acquisition of new assets. Accruit’s platform allows all transaction phases to be managed electronically, delivering valuable tools to clients, advisors and administrators of portfolios.

Leveraging the technology and experience of both companies provides the exchange industry with one of the broadest service offerings available. Accruit and NSDE have demonstrated proficiency in exchanges of real estate, automobile and truck fleets, construction, aggregate and agricultural equipment, railcars, aircraft and portfolios of leased equipment, as well as more unusual transactions involving such things as rare art and other collectibles, classic Indy 500 race cars, race horses, cranberry bogs and highway billboards.

Martin Edwards, President of NSDE, described joining Accruit as “an exciting opportunity to combine the existing strengths and expertise of both companies and harness the innovative spirit shared by Accruit and NSDE as we expand our service capabilities.” Edwards will continue to serve as President of NSDE. He will also become Vice President and General Counsel of Accruit and a part of the management team upon closing.

The combined entities offer continuity for existing LKE Program customers of both companies and expanded capabilities for new ones. Brent Abrahm, President and CEO of Accruit, stated: “In addition to the many clear benefits of this acquisition, NSDE’s significant niche in the LKE Program area bolsters the strong and unique Joint Business Relationship Accruit enjoys with PricewaterhouseCoopers LLP (PwC), where our complementary services provide a comprehensive solution for program exchanges in the LKE industry. Marty’s reputation in the marketplace, along with his 25 year history of facilitating forward and reverse exchanges makes this acquisition a strategic step in expanding Accruit’s current offerings in the arena of real property exchanges.”

As part of the management change at Accruit, Abrahm also announced that the task of identifying funding sources and acquisition candidates has largely been accomplished at this time and that Accruit’s CFO, Juan Perez, who had been spearheading those efforts, will be leaving Accruit. “We respect and appreciate what Juan has helped us accomplish, and know he will be a valuable asset to his next company.”

NSDE’s Independent Director/Independent Manager Services, which facilitate lender required, bankruptcy-remote LLC structures, will also be continued and expanded under Accruit’s ownership.

BMO Financial Group is a highly diversified North American financial services organization which provides a broad range of retail banking, wealth management and investment banking products and solutions.

The parties anticipate a closing in September 2011.

Many companies with active like-kind exchange (LKE) programs are trying to understand how the new 100% bonus rules will impact their LKE benefits, and may even be considering suspending their programs for 2011 due to the enhanced bonus deduction. Since a program suspension could potentially create new tax and business process issues, it is important to look at more than just the Federal tax benefit when considering the suspension of a LKE program. Other factors to consider include:

·         Impact of state decoupling from Federal “bonus” rules

·         State NOL considerations

·         Federal Alternative Minimum Tax (”AMT”) considerations for individual owners of S-Corporations and partnerships

·         Ability to utilize used property as replacement property to maximize LKE and bonus benefit

·         Bonus depreciation sunset planning opportunities

·         Utilizing LKE service providers for fixed asset tax compliance and reporting

·         Time and resources needed to “de-institutionalize” a company’s LKE processes

A more detailed overview of each consideration is listed below.

The Federal tax impact of 100% bonus - with and without a LKE program

On December 17, 2010, President Obama signed HR 4853, the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010″ (the “Act”). The Act increases the bonus depreciation deduction from 50% to 100% for qualifying property acquired and placed in service after September 8, 2010 and before January 1, 2012. In addition, it also extends a 50% “bonus” depreciation deduction for property acquired and placed in service in 2012. In order to qualify for “bonus” depreciation, the property must be new and it must have a tax recovery period of 20 years or less.

The impact of 100% bonus depreciation on companies with and without LKE programs is illustrated in the following example where an asset is sold for a gain and the replacement property qualifies for 100% bonus depreciation. In this example, a five year MACRS asset acquired in 2009 is sold for $15,000 with a tax basis of $4,800, resulting in realized gain of $10,200. A like kind asset is acquired for $25,000. Since gain deferred by LKE reduces the depreciable basis of replacement property acquired as part of an exchange, it also reduces the amount of the 100% bonus depreciation allowed in regard to that property.

While it’s clear from the example above that there is no Federal tax benefit derived from an LKE program during the period of 100% bonus depreciation (September 9, 2010 to December 31, 2011), only considering the Federal impact fails to address a number of other important factors. Failure to do so could result in significant additional Federal and state taxes in both the current and future tax years.

Impact of states decoupling from Federal “bonus” rules

In the current economic environment, many states are experiencing significant fiscal challenges that prevent them from adopting generous Federal bonus depreciation rules (100% bonus or otherwise). Approximately 80% of the states have not adopted previously enacted Federal bonus depreciation rules. These states are likely to continue this trend and others may join. In states that decouple from the Federal bonus depreciation rules, the suspension of a company’s LKE program could result in an additional 2011 state tax liability equal to the company’s forgone LKE deferral multiplied by the state’s highest marginal tax rate. Depending on the state, that tax bill could amount to as much as 11% of the foregone LKE deferral.

To illustrate, let’s assume the same asset is sold as in the previous example. In this instance, let’s also assume that the relevant state has decoupled from Federal bonus depreciation. For state purposes, a gain of $5,400 would be realized (sales proceeds of $15,000 less state tax basis of $9,600).

This example illustrates the potential state tax savings from the sale of one asset. While individual company situations will vary, we expect that state tax savings will be significant for many companies if they are filing in states that have decoupled from bonus depreciation. Please contact us if you would like more information on the states that have decoupled. As more fully explained below, a reduction in state taxes can also reduce the alternative minimum tax (”AMT”) for owners of closely held companies.

State Net Operating Loss (NOL) considerations

Many states have Net Operating Loss (NOL) carryback and carryforward provisions that are more restrictive than the “2 years back and 20 years forward” provisions under Federal law. In addition, for the same budgetary reasons mentioned above, some states have suspended or eliminated NOL carrybacks and carryforwards. Where NOLs are restricted, taxpayers need to closely examine their own facts and circumstances to determine the impact of bonus depreciation on their taxable income.

AMT considerations for individual owners of S-Corporations and partnerships

As explained above, maintaining LKE can result in a reduction of state taxes since most states did not allow bonus depreciation. Because individual taxpayers are not allowed to deduct state income taxes in calculating their Federal Alternative Minimum Tax (AMT), LKE will generally reduce the state tax preference item which may either decrease or eliminate AMT. However, if a taxpayer suspends its LKE program, its state tax liability will increase, increasing the state preference item, and possibly result in additional AMT.

In addition, AMT resulting from lost state tax deductions is not allowed in the calculation of AMT credits that are typically allowed to offset certain regular tax liabilities in future tax years. Accordingly, for those taxpayers who incur additional state income tax as a result of suspending their LKE program and who are also subject to AMT, suspending their LKE program may result in additional AMT that can not be recouped in future years.

AMT can be influenced by a number of factors and is taxpayer specific. We are available to help you better understand the AMT benefits that may be achieved with your LKE activity.

Ability to utilize used property as replacement property to maximize LKE and bonus benefits

Used property does not qualify for bonus depreciation. However, LKE allows used property to be used as replacement property to complete an exchange. In addition, LKE safe harbor rules provide taxpayers flexibility in matching relinquished and replacement properties to complete exchanges. This flexibility presents a planning opportunity for companies to complete exchanges with “used” replacement property acquisitions that do not qualify for bonus depreciation rather than new property acquisitions that would otherwise qualify for 100% bonus depreciation. For companies who acquire used property, this can be an important consideration in evaluating the benefit of LKE activity in 2011.

Bonus depreciation sunset planning opportunities

LKE rules give taxpayers who “identify” potential replacement property up to 180 days to acquire identified replacement assets. Consequently, assets sold after July 1, 2011 can be exchanged for assets acquired after December 31, 2011 which are not eligible for 100% bonus depreciation. In this way, taxpayers can take advantage of the 100% bonus depreciation deduction for assets acquired in 2011 while still achieving a benefit for gains deferred from assets sold in the second half of 2011.

Careful planning in this area may significantly increase the amount of Federal and state NOLs available to offset income which can be used to reduce taxes in past and future years through carryback and carryforward provisions.

Utilizing your LKE Service provider for fixed asset tax compliance and reporting

Most companies use their LKE provider to periodically calculate and report tax depreciation on LKE, and in some cases, non-LKE assets. For these companies, suspending their LKE programs might not result in a significant cost savings since they would need to develop and implement alternative processes to calculate and report tax depreciation, or continue to use their LKE provider for this service.

Time and resources needed to “de-institutionalize” a company’s LKE processes

The requirements of an LKE program necessitate changes to operational business processes in order to institutionalize LKE for asset dispositions and acquisitions. Designing and implementing these operational changes requires significant time and resources from company professionals in a variety of areas including treasury, accounting, tax, procurement, remarketing, legal, and customer and vendor communications.

Suspending an LKE program may require amendments to the company’s exchange agreements, modifications of the company’s cash processes and account structures, or require changes to communications that the company makes to its customers and vendors. All of these changes require time, effort and expense to modify. These costs and changes to institutionalized business processes must be considered relative to the benefits of suspending an LKE program for a relatively short period of time.

Summary

As discussed above, only considering the Federal tax benefits of 100% bonus depreciation does not provide a complete analysis of the issues that should be considered when deciding to maintain or suspend an LKE program during 2011. While the long term advantages of an LKE program are clear, the short term benefits during periods of 100% bonus depreciation require a careful evaluation of all relevant factors to determine the best overall tax position and course of action for the company.

LKE programs represent an effective tool that companies can use for Federal and state tax planning, and streamlining their fixed asset processes. In addition, if 100% bonus depreciation is utilized, an LKE strategy becomes even more important when bonus expires, as a company’s tax basis in its fixed assets will be reduced to zero which ultimately will lead to large tax gains unless deferred through an LKE program.

Regarding the move, Brent Abrahm, CEO of Accruit, stated, “We’re very excited about our new office and a redesign of the space. The new layout will facilitate better communication among team members while maintaining our state-of-the-art security and data infrastructure.” In this distinctive new location looking down upon Coors Field, the new Accruit will accommodate the space needed to house our current team and will allow us room for future growth.

DENVER (Feb. 24, 2011) — Accruit, LLC, the leader in like-kind exchange (LKE) and qualified intermediary services (QI), today announced that it conducted a record number of exchanges at the unreserved 2011 Ritchie Bros. Orlando auction, held last week (Feb. 15 – 19). Representing nearly five percent of the total value of items sold, this marks Accruit’s highest value of exchanges conducted in its history as a provider at this auction.

“The outstanding value of exchanges conducted at this Ritchie Bros. auction tells us that American businesses are beginning to put the recession behind them and are envisioning profitability and taxability on the horizon,” said Mike Luster, Director of Corporate Accounts for Accruit. “We’re very optimistic about this level of activity, which indicates that companies are again starting to trust and understand the significant benefits of 1031 LKE strategies.”

With more than 8,000 heavy equipment items auctioned off during the five-day event, this Ritchie Bros. auction brought in a record of more than 7,500 local and international bidders.The amount of exchanges conducted by Accruit this year is 300 percent greater as compared to past years at this auction.

“The increasing number of LKEs processed through our auctions serves as one of many barometers on the growing strength of the U.S. economy,” adds Peter Blake, CEO of Ritchie Bros. “With equipment manufacturers ramping up production and many consignors replacing equipment sold at auctions, Accruit’s integrated LKE offering makes it efficient for our clients and for Ritchie Bros. to maximize the money they keep in their pocket.”

“We are also seeing a higher number of reverse exchanges occurring during these auctions,” said Brent Abrahm, CEO of Accruit. “Consignors cannot risk selling equipment unless they already have the right replacement  piece of equipment for the job. The consignor can take advantage of deals at auction with a reverse exchange by purchasing now then selling older assets in coming months, which provides a tremendous cash flow incentive.”

About Accruit, LLC
Accruit is the nation’s leading provider of qualified intermediary (QI) services for personal property 1031 exchanges and is the only provider with a patented like-kind exchange (LKE) process (U.S. Patent No. 7,379,910, and other patents pending). Accruit has served companies in more than 20 industries, helping them to transform billions of dollars in tax liability into working cash flow. In a Joint Business Relationship, Accruit and PricewaterhouseCoopers (PwC) provide integrated QI and LKE tax services. Through the combination of solutions, Accruit and PwC draw on years of expertise to dominate a large percentage of the LKE tax strategy programs implemented in the marketplace today. For more information on Accruit and 1031 exchanges see the company’s Web site at www.accruit.com or e-mail info@accruit.com.

2011 is well underway. As you close out 2010 with an eye on tax time, it is important to consider the need to extend the filing date of your Federal tax return.

The Technical Details

Section 1031 of the Internal Revenue Code dictates that like-kind exchanges must be completed by the earlier of 180 days from the transfer date of the relinquished property or by the due date, with extensions, of your Federal tax return. If you have an active like-kind exchange that began in 2010 and has a 180 day deadline beyond the due date of your tax return, you may need to apply for an extension of time to file. Details regarding the deadline requirements can be also be found within your signed Exchange Agreement.

Learn More

Always consult with your tax advisor regarding proper tax reporting and the need for any filing extensions. If you have any questions about how to best handle your active 1031 Exchanges during tax season, contact your Accruit client relations manager.

This is truly great news for all of us, and I’d like to begin by explaining what it means for everyone, and in particular, what it means for your business.

How does the JBR work?

Accruit’s new relationship with PwC is not a sale or a merger – there is no change of control involved. Accruit will remain an independent and autonomous company and I will remain as president and CEO. Instead, it’s an agreement that defines how we will collaborate in order to better serve the 1031 exchange marketplace. Here’s how it will work:

• Over the next several months Accruit and PwC will be working together to migrate the day-to-day compliance and tax reporting functions of our current LKE program clients to PwC. Accruit will continue to be the qualified intermediary (QI) for our existing clients and will be the preferred QI for future PwC program clients.
• PwC will be hiring three Accruit Client Service Managers (CSMs), so in most cases existing Accruit clients will continue working on a daily basis with their current CSM. In order to assure continuity of operations for our valued clients, these employees will remain on-site at Accruit headquarters in Denver for the time being.
• One change that will take place eventually will be a migration from Accruit’s Exchange Manager™ platform to PwC’s eLKE platform. However, before any such changes take place PwC will be looking under the hood at our highly successful software. We expect that future versions of the platform used by our clients will integrate the best of Exchange Manager™ and eLKE, a best-of-both-worlds approach that serves the effectiveness and efficiency of your business. During the transition period, we will develop and execute a strategy for this migration, and your input will be important in this process.
• The bundled services solution includes qualified intermediary and LKE services, the same uncompromising one-to-one client service to which our clients are accustomed, and a more comprehensive and integrated tax advisory solution.

Obviously clients old and new will see an evolution in their service over time, just as they would in the absence of the JBR. The difference is that now product and service iterations will be able to take advantage of the best that both Accruit and PwC have to offer. In the past, clients were forced to choose, either/or, between PwC and Accruit, both of which represented a particular set of advantages. Now businesses with LKE programs will be operating in a both/and world that we expect will result in greater effectiveness, operational efficiency and service.

Why PwC and why now?

Periodically people familiar with the 1031 industry have asked us why Accruit and PwC weren’t working together. The truth is that our two companies collaborating on solutions and services would represent significant benefit for our clients.

The reasons are compelling.

• PwC is an industry leading provider of 1031 exchange tax services.
• Accruit is the #1 qualified intermediary in the nation.
• Accruit and PwC are the top two providers of 1031 exchange program solutions.
• Together PwC and Accruit serve more than 150 LKE program clients. The next largest player in the space serves fewer than 15 clients.

The natural synergies between what the two companies do are obvious and powerful. Together we are stronger than we are apart because we can now integrate services that were previously marketed as competing offerings.

I hope it’s clear just how great this opportunity is for 1031 exchange clients across the country. We’re excited about the future and are convinced that the Accruit/PwC JBR represents a tremendous benefit for the clients that we’ve served over the past decade.

If you have further questions, let me refer you to the official press joint release from PwC US and Accruit. In addition, clients can contact their Client Service Managers for more information, and as always the leadership team welcomes your feedback. I can be reached at brenta@accruit.com or 866.397.1031.

Maggie O’Donovan-Bolton
PwC US
914-921-4181
maggie.o.bolton@us.pwc.com

Brent Abrahm
Accruit, LLC
866.397.1031
brenta@accruit.com

NEW YORK (NOVEMBER 5, 2010) – PwC US and Accruit, LLC today announced they have formed a joint business relationship to provide like-kind exchange (”LKE”) services, combining their leading positions in providing LKE program services to more than 150 clients across 20 industries. In making the announcement, David Fowler, co-leader of PwC’s LKE Services, said, “We are pleased to enter this joint business relationship with a team of talented professionals whose track record of delivering quality LKE services reflects our commitment to bringing our clients the resources to address their LKE program needs.”

Internal Revenue Code Section 1031 allows taxpayers to defer federal income taxes on an exchange of like-kind properties held for business or investment purposes. Businesses with extensive asset portfolios that routinely dispose of assets on a regular basis at a gain (e.g., equipment leasing or rental car companies) may decide to set up a LKE program to access the gain deferral allowed under Section 1031. Existing tax rules require the involvement of a third-party qualified intermediary (”QI”) to facilitate the exchanges and to hold the cash from the disposal of the assets until it is needed to purchase replacement assets.

PwC and Accruit have more than 20 years of combined experience providing LKE program services. The joint business relationship enables PwC and Accruit to work together where permitted by professional and regulatory requirements to deliver a comprehensive LKE program solution that leverages PwC’s experience in providing LKE tax advisory services and Accruit’s knowledge in delivering LKE QI services.

According to Brent Abrahm, founder and CEO of Accruit, “The delivery of tax solutions such as 1031 like-kind exchange programs has become increasingly complex in recent years. PwC’s excellent reputation and winning track record with LKE programs is a result of their demonstrated understanding of the tax laws around LKE and a tremendous expertise in working with the IRS and assisting their clients. We’re convinced that PwC’s established leadership in the delivery of tax consulting and compliance services, combined with the security and flexibility of Accruit’s qualified intermediary services, afford the 1031 exchange marketplace a powerful integrated solution.”

Concurrent with the launch of the joint business relationship, PwC has assumed responsibility for LKE tax reporting for Accruit’s existing LKE program clients and has designated Accruit as PwC’s preferred provider of QI services for future LKE program clients. Separate from the PwC joint business relationship, Accruit will continue to provide QI services for single exchange clients utilizing Ascent™, an online solution designed for companies with fully depreciated asset portfolios that do not require complex tax reporting or detailed asset tracking.

In the joint business relationship, PwC will provide the ongoing tax services to support the LKE program activities and the reporting needed for tax return compliance. Accruit will focus on providing QI services to facilitate the LKE program exchanges.

“PwC and Accruit have historically led the development of advanced technology solutions for the LKE program market,” Abrahm noted. “For example, Accruit’s QI services emphasize the importance of customizing banking programs around client-defined requirements. In joining forces with PwC, we’ll be able to leverage our combined experience to develop a better, more integrated LKE solution for our clients.”

Said Rick Reekie, co-leader of PwC’s LKE Services practice, “Over the last 10 years, Accruit has become the leading provider of QI services for personal property LKE programs. We looked at the quality of Accruit’s QI process and their leadership and reputation in the QI industry, and it became clear that working together was in our clients’ best interest.”

About Accruit, LLC

Accruit is the nation’s leading provider of qualified intermediary services for personal property 1031 exchanges and is the only provider with a patented like-kind exchange process (U.S. Patent No. 7,379,910, and other patents pending). Accruit has served companies in more than 20 industries, helping them to transform billions of dollars in tax liability into working cash flow. For more information on Accruit and 1031 exchanges see the company’s Web site at www.accruit.com or e-mail info@accruit.com.

About PwC’s Like-Kind Exchange Services

PwC’s Like-Kind Exchange Services has helped over 100 companies enhance cash flow and tax deferral on the sale of assets by automating the processes needed to satisfy stringent IRS LKE requirements and provide the tax reporting necessary for tax compliance. For more information, visit www.pwcelke.com.

About PwC

PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information.