New Tax Relief Act Eliminates Need for Like-Kind Exchange Programs in 2011

WTP Exchange Advises Companies to "Turn Off" LKE Programs Next Year

Dec 20, 2010, 12:06 ET from WTP Advisors

WHITE PLAINS, N.Y., Dec. 20, 2010 /PRNewswire/ -- The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 signed into law by President Obama last Friday which allows businesses to write off 100 percent of capital expenditures through 2011, has rendered all like-kind exchange (LKE) programs unnecessary for most of next year, according to Ron Hodgeman, tax director at WTP Exchange, an affiliate company of WTP Advisors.  WTP Exchange is the only firm in the world to offer a fully-integrated LKE Program solution.

Generally, the exchange of business or investment property solely for business or investment property of a like-kind results in the recognition of no gain or loss under Internal Revenue Code Section 1031. Tax-deferred exchanges have been in the tax law for almost 90 years and are typically viewed as a permanent solution that allows companies to save taxes and increase cash flow.

"The new tax act means that if you are one of the hundreds of companies that have implemented an LKE Program, it is time to turn it off (1).  Temporarily there is no benefit from an LKE Program, but there is still a significant cost to keeping it turned on," says Hodgeman.

By allowing businesses to immediately deduct the cost of their capital expenditures, as opposed to spreading the deductions over several years as dictated by the depreciation rules found in the tax code, Congress believes that companies will free up cash and inject it into the economy.  The ability to write off 100 percent of capital expenditures confers exactly the same benefits as provided by an LKE program.  However, the 100 percent bonus depreciation provision allows companies to temporarily avoid the costs and fees associated with running an LKE program.  The fees paid to an LKE software provider and Qualified Intermediary (QI) can often add up to hundreds of thousands of dollars.

"As an LKE program provider, our current advice to our clients to temporarily shut down our program will obviously impact our bottom line, but it's the right answer for our clients.  It would be unethical and unpatriotic to charge clients for a service which the Tax Relief Act has already paid for.  All LKE program providers should be honest with their clients and advise them to turn off their LKE programs for most of 2011," says Ian Boccaccio, CEO of WTP Exchange, and Partner and co-founder of WTP Advisors.

Eric Shumaker, CFO at Hoffman Equipment in Piscataway, NJ said, "As a client using WTP's LKE program, we were surprised when WTP called and advised us not to use their service in the coming year.  I appreciate their willingness to give me good advice, even when the correct course of action is not in WTP's short term best interest."  Shumaker continued, "Pausing LKE activity in 2011 frees up cash flow that Hoffman can use in other areas.  In the third or fourth quarter of 2011 we will revisit the situation and will likely resume conducting exchanges with WTP."

During "normal" times, companies can realize tremendous benefits from an LKE Program.  An LKE Program is considered a powerful tax strategy that has allowed hundreds of organizations to increase their cash flow by deferring the tax gain realized on the sales of their business assets.

"But these are not normal times.  The money that a company saves by temporarily turning off its LKE Program can be used to prevent the next round of layoffs, hire new employees, or make capital expenditures," says Hodgeman.

There are other benefits to turning off the program in addition to the cost savings, according to Hodgeman.  For example, companies may have concerns over the security of their exchange funds and want a better QI solution, or some may not be satisfied with the level of service provided by their LKE software provider or the functionality of the software itself.

Hodgeman says he's heard from many companies who felt either that they were being held hostage by their current service providers, or that making a change midstream would result in a loss of tax deferral.

"Take advantage of this opportunity to review your LKE Program and do what is best for your business.  The tax relief act signed into law last Friday provides companies with the opportunity to find another, better LKE program provider for 2012 and beyond," he notes. "Our message is simple - turn off your LKE Program now, but be ready to turn it on at the right time."

In addition to world-class software, WTP Exchange provides LKE tax consulting services, and Qualified Intermediary services.

About WTP Exchange and WTP Advisors

WTP Exchange, an affiliate company of WTP Advisors, is a leading provider of like-kind exchange ("LKE") solutions. WTP Exchange is the only company to integrate and provide all three of the necessary components to a successful LKE Program solution: (1) expert LKE and tax consulting services, (2) LKE software, and (3) Qualified Intermediary services.

WTP Advisors is a leader in tax and business advisory services for a global marketplace. Our highly skilled professionals equipped with years of industry experience, coupled with our cutting-edge technologies, make substantive and long-term differences to an organization's profitability. WTP Advisors is headquartered in White Plains, New York, with offices across North America, Asia and Europe.

(1) An LKE Program can be "turned off" by terminating the Master Exchange agreement; or failing to meet at least one of the 1031 requirements.  A client can fail to meet the 1031 requirements by not providing written notification of the 1031 assignment to the sellers of replacement property and purchasers of relinquished property; or directing the exchange funds into their operating account rather than the QI account. Similarly, an LKE Program can be "turned back on" by entering into a new Master Exchange Agreement; and once again satisfying all of the 1031 requirements (providing the proper written notifications, directing the funds to the QI, etc.).

SOURCE WTP Advisors



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