The OCC issued an interpretive letter (“Letter #869”) in which it authorized a national bank (the “Bank’) to establish an operating subsidiary as an LLC (the “Subsidiary”) that will assist customers who wish to engage in “like-kind exchanges” of property under Section 1031 (“Section 1031”) of the Internal Revenue Code (the “IRC”). Section 1031 allows taxpayers, who meet the requirements of Section 1031, to defer tax payments on gains from real and personal business or investment properties as long as the proceeds are invested in similar properties.
The Bank represented to the OCC that the Subsidiary will offer financial advisory and investment advisory services to customers, but will not provide tax or accounting advice to customers. The Subsidiary will also provide customers with referrals to real estate brokers and certain other third-party providers. The Bank further represented to the OCC that the Subsidiary will advise customers to obtain tax and accounting advice from their own attorneys and accountants. The Subsidiary also, among other things, will act as an “exchange accommodation titleholder” by temporarily holding title to property that is being positioned by a customer in connection with a Section 1031 exchange.
In Letter #869, the OCC imposed several conditions to its approval, including, among other things, that the Subsidiary will maintain adequate and appropriate risk mitigation policies, procedures and controls for these activities.