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One way this transaction can be a LKE is by doing a simultaneous transaction of transferring the original unit and taking possession of a replacement unit the same day. If you do this, LKE is available without the use of the third party intermediary.

Sales tax law differs from state to state and it is safe to say that it would be smart to get some expert advice before trying to make this type of transaction a trade-in transaction, and to understand who winds up the tax liability should there be one.

To back up my feelings about this type of transaction I asked two of the leading LKE service providers if they believe the transaction as described above would provide LKE benefit other than as a simultaneous transaction (same day). Guess what, two different answers.

Jeff Nelson of PWC comments, "The transaction described is fairly common in the industry and customers and dealers should be able to structure these types of contingent/consignment value contracts in compliance with the rules of IRC Sec 1031 even without the services of a Qualifed Intermediary. However, Like Kind Exchange is extremely dependent on the proper form of the transaction. There are no short cuts and customers/dealers must be careful to respect that form when structuring their trade-ins..."

Jim Burnett of Accruit LLC stated that "pass-throughs without a Qualifed Intermediary involved may fall ourside of the safe harbor guidelines as established in IRC 1031. The fact that there is typically a delay between the time the original asset is transferred to a dealer, and the date replacement property is acquired raises questions. Like Kind Exchanges are not optional. Guidance suggests that 1031 exchanges are form over substance, meaning that if it looks like an exchange, the taxpayer must follow a specific process, including execution of an exchange agreement, notification of assignment in writing, inclusion of a Qualified Intermediary (to avoid constructive receipt), and completion of Form 8824 as part of the taxpayer's tax filing. Additionally, given the tremendous benefit and low cost of single exchanges, even the smallest equipment transaction can be run as a safe harbor LKE."