Once all the master agreements are in place, the mechanism for the individual exchanges is as follows:
1. When a New Asset purchase is imminent, a new EAT will be formed for the particular reverse exchange involving the New Asset
2. The Exchanger must provide to the Seller of the New Assets a formal “Notice to the Seller” informing them that the New Assets will be involved in a 1031 exchange. The form of the notice is provided by Petroleum Strategies but must be issued on the Exchanger’s letterhead. As structured, the notice is required once per unique Seller and not for each individual New Asset purchase
3. The Master EAT will acquire the New Asset from the relevant Seller using funds supplied by the Exchanger pursuant to the Master Exchangor Note. Title will transfer to the Master EAT using a standard documentation form (probably a Bill of Sale) made in favor of the Master EAT, as opposed to the specific EAT.
4. The Exchanger will be required to execute simple addenda to the various Master agreements that 1) initiate the specific reverse exchange involving the New Assets, 2) add the New Assets to the Master Lease and 3) draw the additional funds required to buy the New Assets pursuant to the Master Note. The forms for these addenda are determined at the outset of the exchange program and no review or modification of them, other than providing the specifics of the New Assets, should be required.
5. The Exchanger will then have 45 days to identify potential Old Assets that may be sold as part of the exchange. The standard 3-property and 200% identification rules apply in these cases. Petroleum Strategies provides a form that may used for the identification.
6. Once an agreement with a Buyer for the purchase of Old Assets has been reached, the Exchanger must provide them with “Notice to the Buyer”. This is a notice to each Buyer that Old Assets will be involved in a 1031 exchange. The form of the notice is provided but must be issued on the Exchanger’s letterhead. As structured, the notice is required once per unique Buyer and not for each individual asset sale.
7. Once the sale of properly identified Old Assets is about to be consummated, an addendum to the Master Exchange Agreement will be executed along with a brief Settlement Statement describing the movement of consideration and the transfer of assets to the Old Asset Buyer and to the Exchangor (the New Assets) pursuant to a simultaneous 1031 exchange. A Bill of Sale in favor of the Exchanger for the New Assets will be issued at that time.
If the Exchanger’s prefers to take title to New Assets by means of an assignment of the relevant series LLC interests, we can provide an assignment document as part of the settlement, as opposed to a Bill of Sale.
Petroleum Strategies, Inc. does not give tax or legal advice. The information contained herein should not be relied upon as a substitute for tax or legal advice obtained from a competent tax and/or legal advisor.
