I addressed safe harbor reverse exchange structures in my last blog post.  I will go into more detail as to how a non-safe-harbor reverse exchange might be structured in today's market.

Deciding On Reverse Exchange Structure

Reverse exchanges structured pursuant to Rev. Proc. 2000-37 must be structured differently from those that are structured using a non-safe-harbor reverse exchagne structure.  You must decide up front if you will be able to follow the safe harbor guidelines or if you will most likely not be able to stay within the 180 calendar day deadline and will need to proceed with a non-safe-harbor reverse exchange. 

Non-Safe-Harbor Reverse Exchange Structure Quite Different

The non-safe-harbor reverse exchange must be structured quite differently from the safe harbor provisions provided in the Rev. Proc. 2000-37.  The structure can not take advantage of any of the non-arms-length safe harbor provisions provided in Rev. Proc. 2000-37 and must be structured such that the Exchange Accommodation Titleholder set-up by the Qualified Intermidiary will be functioning in a principle capacity and not in an agency capacity as with the safe harbor reverse exchange.

Substantially More Risk to the Qualified Intermediary

These non-safe-harbor reverse exchange structures pose a much greater risk to the Qualified Intermediary and related Exchange Accommodation Titleholder, so care must be taken in evaluating prospective non-safe-harbor reverse exchange providers. 

Separate Entities Involved

The Qualified Intermediary should not use the same corporate entities for non-safe-harbor reverse exchanges that are used for regular 1031 exchange transactions.  There is a greater amount of risk involved, so separate legal entities should be put into place in order to better protect the overall Qualified Intermediary operation and its other clients.