Like-kind exchanges stimulate $10 billion of equipment acquisitions

Savvy equipment dealers are familiar with Section 1031 of the Internal Revenue Code, the section that allows a company to defer taxes associated with the sale of business or investment assets provided that the revenue from the sale is reinvested into other assets that are of like-kind to those sold. This is known as a like-kind exchange (LKE).

Like-kind exchanges are a powerful cash management strategy to increase cash flow and sales revenue. Harnessing the power of LKE programs as 75 AED members are currently doing will put money back into your business, and educating your customers on the benefits of single like-kind exchanges and the ease with which they can be implemented will free up money for them to purchase more equipment.

This is why we're happy to announce that PwC and Accruit, both of whom have been supporting members for over a decade, were recently designated as the AED's preferred providers of 1031 like-kind exchange services.

How like-kind exchanges help heavy equipment industry

Cash liquidity and access to operating capital are key to success in any industry, and both equipment dealers and their customers realize the benefit when funds that would otherwise be lost to taxes can be invested back into the business.

In 2014, like-kind exchanges stimulated the acquisition of more than $10 billion of equipment in the heavy equipment industry. Like-kind exchanges drive growth in the industry, giving businesses a strategy to increase cash flow and stay competitive.

How like-kind exchanges help economy

In March, a study conducted by Ernst & Young and partially underwritten by the AED detailed the benefits that like-kind exchanges bring to the U.S. economy – specifically the impact that LKEs have upon GDP, cost of capital, labor productivity and holding periods of business assets.

Discussed from the point of view of the effect that a repeal of like-kind exchanges would have on the economy, the study states that "The key source of these estimated impacts is the finding that the repeal of the like-kind exchange provisions, even when paired with a revenue neutral reduction in the corporate income tax rate, increases the cost of capital for business investment.”

Another study, authored by finance professors Dr. David Ling and Dr. Milena Petrova in July, similarly found that like-kind exchanges encourage investment, contribute significantly to federal tax revenue, lead to job creation, and result in less debt.

PwC and Accruit’s joint business relationship

The completion of a like-kind exchange normally requires a qualified intermediary (QI) whose job it is to hold sales proceeds until replacement assets are purchased, ensure that prescribed timelines are met, and assign contract rights and notifications to relevant parties. However, the treasury regulations require that tax advisory services remain separate from like-kind exchange services, which is why, for the past five years, PwC and Accruit have partnered to provide fully-managed like-kind exchange services to more than 170 clients across 20 industries, including 75 AED member companies.

In a unique joint business relationship that combines PwC’s LKE tax and technology capabilities with Accruit’s qualified intermediary services, the two companies provide integrated 1031 like-kind exchange program services with the clear separation of tax and like-kind exchange services required by the federal tax code.

Going forward

For more than a decade, both PwC and Accruit have served as sponsors for AED events and speakers at AED conferences. Their long-standing relationship with the AED has supported association members in achieving business goals and will continue to do so in their preferred provider capacity.

Said Dave Fowler, leader of PwC's LKE Services practice, “Business leaders understand the notion that trust takes years to build, seconds to break and a lifetime to repair. Our team is extremely honored with the trust the AED has placed in our services and the mutually beneficial relationship we have developed over the last 15 years.”

Accruit CEO Brent Abrahm also noted his company’s long-standing partnership with AED, saying “We're proud to have been a member of the AED since 2002 and excited to be a part of the change that the association brings to the industry.”

Whether you’re considering a comprehensive LKE program or a single LKE for one asset, PwC and Accruit are available to discuss and accommodate your needs.

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