Could a deed from a reverse-exchange titleholder qualify for Florida's principal-agent exemption?

Plain-English summary

A taxpayer used an exchange accommodation titleholder to acquire land and construct a new headquarters during a reverse section 1031 exchange. Documentary stamp tax had been paid when the titleholder acquired the land, and the taxpayer later expected a deed from the titleholder.

Florida explained that federal section 1031 treatment generally requires no agency relationship between the exchange parties. Federal guidance nevertheless allowed the titleholder to be treated as agent solely for state transfer-tax purposes without defeating the federal exchange.

Florida therefore approved the principal-agent deed exemption if the acquisition agreement expressly made the titleholder the taxpayer's agent for state transfer-tax purposes, but not for federal income-tax purposes. Without that statement, the Department would treat the deed as lacking the principal-agent exemption.

What this means for you

The deed-tax result depended on precise agreement language distinguishing state transfer-tax agency from federal income-tax treatment. The existence of a reverse section 1031 exchange alone did not establish the exemption.

Common questions

Was the deed automatically exempt because it completed a section 1031 exchange? No. The ruling required the stated principal-agent provision.

Could the titleholder be an agent for every purpose? No. The approved language limited agency to state transfer-tax purposes and excluded federal income-tax purposes.

What if the agreement omitted that clause? Florida said there would be no principal-agent exemption.

Citations and references

• Fla. Stat. § 201.02(1) (documentary stamp tax on deeds)
• Fla. Admin. Code r. 12B-4.014(5) (principal-agent transfers)
• Internal Revenue Code § 1031 (like-kind exchanges)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 05B4-006

Original ruling text

SUMMARY
QUESTION: Is a deed from a qualified exchange accommodator to a Taxpayer in a reverse Section 1031 exchange
transaction subject to documentary stamp tax, or exempt by reason of the principal agent exemption contained in Rule
12B-4.014(5), F.A.C.? Will the inclusion of a statement in the Real Estate Acquisition Agreement specifying that the
qualified exchange accommodator is acting as an agent of the Taxpayer for all purposes except for federal income tax
purposes exempt the transaction per the principal agent relationship?
ANSWER - Based on Facts Below: The IRS has ruled that as part of a Section 1031 exchange, there cannot be an
agency relationship between the parties to the transaction. However, the IRS has ruled that treating an exchange
accommodation titleholder as an agent for state tax transfer purposes, but no other purpose, will not effect the
qualification of a transaction under Section 1031. Therefore, the inclusion of a statement in the Real Estate Acquisition
Agreement that the qualified exchange accommodator is acting as the Taxpayer's agent will exempt the transaction
under the principal agent exemption. However, if such statement were not included, the Department would take the
same position as the IRS that there is no principal agent exemption.

October 3, 2005

Re: Technical Assistance Advisement No. 05B4-006
Documentary Stamp Taxes - Deed Involving 1031 Exchange
Section 201.02(1), F.S.
XXX ("Taxpayer")
XXX ("Manager")
XXX ("Exchange Accommodation Title Holder/EAT")
XXX ("Holdings")
Dear:
This is in response to the request for a Technical Assistance Advisement postmarked April 4, 2005. Taxpayer
requests confirmation that no Florida documentary stamp taxes are applicable to a deed from a Section 1031 EAT to
Taxpayer.
Facts Presented by the Petitioner
Taxpayer's correspondence explains that Taxpayer has been in the process of relocating its corporate
headquarters from its present location to a new location to be constructed in a Florida county ("New Location").
Taxpayer's overall plan had been to sell the present location and use the proceeds therefrom to purchase the land for
the New Location and to construct the required improvements thereupon. Taxpayer intended for these transactions to
qualify as a tax-free exchange under Section 1031, I.R.C., 1986, as amended. Taxpayer decided the most effective
way to accomplish the foregoing was to do an exchange under Section 1031 by having Exchange Accommodation

Title Holder (EAT) first acquire the land necessary for the New Location and then have the EAT construct the desired
improvements. The EAT acquired the necessary land in 2003 and began construction of the desired improvements
shortly thereafter. It is anticipated the improvements would be complete in April of 2005. Appropriate documentary
stamp taxes were paid upon the land's acquisition in 2003 by EAT.
Taxpayer has recently sold a portion of its Present Location to an unrelated third party, and it is anticipated that two
additional sales of portions remaining to be sold of the Present Location will occur in the next six months. The
proceeds from the initial sale were placed in escrow with a bank affiliate, and the proceeds from these two planned
sales will also be placed into a similar escrow arrangement.
The EAT, (a wholly owned subsidiary of Holdings), agreed to acquire the land and construct the improvements.
Taxpayer provided some of the funding for the acquisition of the land and the improvements via a loan, and the
remaining funding was obtained by the EAT under a bank loan guaranteed by Taxpayer. Most of the development and
supervision activities have been delegated by the EAT under a Management Services Agreement to a third party
services provider; however, Taxpayer retained rights for approval/disapproval any material development/construction
actions, and also retains a right to lease the New Location from the EAT if has not yet completed the sale of the Old
Location and obtained the sales proceeds therefrom required to close out this Section 1031 arrangement. Taxpayer
owns an option to purchase the land and the improvements from the EAT for cost plus a small profit element, which
will inure to the benefit of Holdings. If the option at cost plus is not exercised by a date prescribed, the option can only
be exercised by paying to the EAT the fair market value of the land and improvements owned by the EAT. These
economics have been patterned after IRS Private Letter Ruling PLR 200111025 which approved a similar
arrangement.
A copy of the Real Estate Acquisition Agreement, as amended, and the PLR previously cited, were attached to for
review.
Article III.B.2 of the Real Estate Acquisition Agreement states that:
"Nothing herein contained shall be construed or is intended to make Taxpayer, on the one hand, and Holdings and
[EAT], on the other hand, agents, partners or joint venturers of or with one another. This agreement (a) is not intended
to be a partnership agreement and does not create or result in a partnership, (b) does not render [Taxpayer] or
[Holdings] liable for any of the debts of obligations of the other and (c) does not create an agency relationship
between any of the parties hereto."
Requested Ruling
Taxpayer requests a ruling that no Florida documentary stamp tax is due on the recording of the deed(s) of the
New Location from the EAT to Taxpayer in exchange for the payment of the option price stated in the Real Estate
Acquisition Agreement for the reasons cited in the following paragraphs.
Your letter cites TAA 01B4-001, issued January 2, 2001, which held that a deed from an exchange accommodation
titleholder in a reverse Section 1031 transaction was not subject to documentary stamp tax, as it held that the

exchange accommodation titleholder was acting as an agent for the benefit of the taxpayer to acquire the replacement
property, and hence, no documentary stamp taxes were due by reason of the principal-agent exemption. The facts of
this ruling indicate the taxpayer loaned funds to the exchange accommodation titleholder to acquire the replacement
property, and no facts existed in the TAA providing that the exchange accommodation titleholder was explicitly acting
as agent for the taxpayers. Finally, the documents between the taxpayer and the exchange accommodation titleholder
gave the taxpayer the ability to acquire the property from the exchange accommodation titleholder. In comparing the
current situation described in your request with the referenced TAA, you feel that the situation is the same, i.e.,
Taxpayer also loaned funds to the EAT to purchase the land and build the improvements. Taxpayer can acquire the
property from the EAT, and neither the EAT nor Holdings have any other activities other than facilitating this Section
1031 transaction. Consequently, you feel that a favorable TAA should be issued exempting the Section 1031
transaction under the agent - principal relationship exception.
As an aside, you noted the IRS has ruled that treating an exchange accommodation titleholder as an agent for
state transfer tax purposes, but no other purpose, will not effect qualification of a transaction under Section 1031.
(PLR 200148042, issued August 29, 2001).
To the extent it would make a difference in the decision rendered, Taxpayer and the EAT would propose to amend
the Real Estate Acquisition Agreement to provide that solely for Florida Documentary Stamp tax purposes, the EAT is
serving as an agent of Taxpayer.
Law and Discussion
Section 201.02(1), F.S., imposes the documentary stamp tax on deeds, instruments, or writings conveying,
granting, or transferring real property or an interest in real property.
Rule 12B-4.014(5), F.A.C., states that a deed from an agent to his principal conveying real estate purchased with
the funds of the principal is not taxable.
Based on the facts and circumstances in the referenced TAA, the outcome demonstrated an agency/principal
relationship. The Accommodator agreed to hold the Florida property for the benefit of the Exchangor under the terms
of a Qualified Exchange Accommodation Agreement and related documents which collectively provided that the
Accommodator must convey the Florida property to the Exchangor upon request.
As noted in PLR 200148402 issued by the Internal Revenue Service on November 30, 2001, in order to obtain the
benefits of the safe harbor rules contained in the deferred exchange IRS regulations, the transaction need only fit
within the confines of the safe harbor rules. Notwithstanding inconsistent treatment or characterization under state or
local law, assuming the boundaries of the safe harbor rules are not exceeded, the Taxpayer is afforded protection by
the safe harbor rules. Thus, a statement in the Real Estate Acquisition Agreement that the EAT is serving as an agent
for the Taxpayer solely for Florida documentary stamp tax purposes will not affect the qualification of the EAT
agreement for 1031 exchange purposes.
Department's Position

The inclusion of a statement in the Real Estate Acquisition Agreement that the EAT is acting as an agent of the
Taxpayer for all purposes except for federal income tax purposes will serve to exempt the transaction under the
agency/principal relationship in Rule 12B-4.014(5), F.A.C., without having an adverse affect on the qualification of the
transaction for federal income tax purposes. The Department would take the same view as the IRS if such statement
were not included, i.e., that there is no agent/principal relationship.
This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is binding on the
Department only under the facts and circumstances described in the request for this advice as specified in s. 213.22,
F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that
subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this
advice is based may subject similar future transactions to a different treatment than expressed in this response.
You are further advised that this response, your request and related backup documents are public records under
Chapter 119, F.S., and are subject to disclosure to the public under the conditions of s. 213.22, F.S. Confidential
information must be deleted before public disclosure. In an effort to protect confidentiality, we request you provide the
undersigned with an edited copy of your request for Technical Assistance Advisement, the backup material and this
response, deleting names, addresses and any other details which might lead to identification of the taxpayer. Your
response should be received by the Department within 15 days of the date of this letter.
Sincerely,
Joy. B. Eldred, CPA
Tax Law Specialist
Technical Assistance and Dispute Resolution
Record ID: 13648