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with Acme Escrow Co. (Acme). During September 1988, petitioner
entered into agreements designed to structure a delay of the
exchange of the Harrington and Virgil properties with Fountain
Exchange (Fountain). Fountain was to take title to the
Harrington and Virgil properties and act as seller but would hold
the sale proceeds until petitioner could find replacement
property to make it appear as though a like-kind exchange under
section 1031 had occurred within the time allowed by the Internal
Revenue Code. The deferred proceeds of sale were held by
Fountain for about 6 months and then paid to Star Global.
Marilyn Russello and her husband owned Acme and Fountain.
Their business was to accommodate sellers of property by
facilitating what appeared to be a direct exchange in order to
give sellers the opportunity to find replacement property and
also to claim nonrecognition treatment for any gain from the
sale. This is accomplished by Fountain’s acquiring title and
receiving the proceeds of sale from the first property being
sold. Fountain holds title for an instant, and then the title is
passed to the actual buyer from Fountain's client (true seller).
Within 45 days Fountain’s client identifies an "up-leg" property,
and, within 180 days, closes the second escrow at which Fountain
disburses proceeds of the first sale in accord with Fountain's
client's instructions.
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