Case Study (Complex Single Exchange): Hartson Oil

Hartson Oil is an independent energy firm focused on the exploration, development, acquisition and production of domestic natural gas and crude oil. Like most companies in this industry, Hartson routinely buys and sells a variety of corporate assets, including real estate and tangible assets (vehicles, drilling and production equipment, piping and casing).

Hartson faced a complex exchange scenario. The company planned to purchase multiple strings of tubing and casing over a period of several months and they intended to sell scrap tubing and casing sometime between the first set of purchases and the last. The exchanged equipment was to be carved out of a much larger sale and about 25% of the equipment sold wasn't going to be replaced. The replacement property was to be purchased and aggregated in four states: North Dakota, Oklahoma, Pennsylvania and Texas, with the majority of the replacement property to be parked in Texas and Oklahoma, where the bulk of the deferral was to be concentrated.

To address the specific requirements of the proposed transaction, Accruit's Exchange Operations group crafted a "Personal Property Straddle Exchange" and formed Exchange Accommodation Titleholders (EATs) in Texas and Oklahoma to manage the reverse exchange portion of the transaction. Hartson was then able to conduct the entire exchange within clearly defined Safe Harbor guidelines.

Proceeds from the sale of relinquished assets were slightly in excess of $6 million . Since the combined tax rate was approximately 40%, the Accruit single exchange allowed Hartson to defer $2.4 million in tax liability - funds that were reinvested in the company's operations.

* Hartson Oil is based on an actual Accruit client.