Does an Exchange Cooperation Clause Count as Identification in a 1031 Exchange?

When non-simultaneous 1031 Exchanges became more common after the landmark Starker case, the Exchange Cooperation Clause emerged as an essential tool to help structure and complete tax-deferred exchanges properly. But while this clause plays an important role in ensuring cooperation among parties, many investors still wonder — does it qualify as “identification” of replacement property under IRS rules?

Let’s explore what the Exchange Cooperation Clause is, why it exists, and how it relates to the identification requirements in a 1031 Exchange.

What Is an Exchange Cooperation Clause?

An Exchange Cooperation Clause is a contractual provision included in the purchase and sale agreement when a 1031 Exchange is being executed. Its purpose is to ensure that both parties — typically the buyer and seller — agree to cooperate in structuring the transaction as part of a like-kind exchange.

This clause typically authorizes the use of a Qualified Intermediary (QI) and allows assignment of the contract to facilitate the exchange without breaching the terms of the sale. In essence, it ensures that all parties acknowledge the exchange and agree to complete necessary paperwork to comply with IRS guidelines.

Why It Was Introduced

After the Starker v. United States case in 1979, the IRS formally recognized delayed (non-simultaneous) exchanges, which required clearer documentation and cooperation between parties.

Before this ruling, exchanges had to occur simultaneously — both properties were swapped at the same time. The Starker case changed that, allowing investors to sell one property and later acquire another, provided they met strict timelines and identification requirements.

The Exchange Cooperation Clause arose from this shift, ensuring all parties understood and supported the delayed exchange structure.

Does It Qualify as Identification of Replacement Property?

Under Treasury Regulation §1.1031(k)-1(c), an investor must identify replacement property in writing within 45 days of selling the relinquished property. This identification must clearly describe the property — such as by address or legal description — and must be signed by the taxpayer.

An Exchange Cooperation Clause alone does not meet this requirement.

While it acknowledges that the transaction will be part of a 1031 Exchange, it does not identify any specific property to be acquired. Therefore, it cannot serve as the formal written identification required by the IRS.

To satisfy the identification rule, the investor must provide a written notice listing the potential replacement property (or properties) to the Qualified Intermediary or another party permitted under IRS guidelines within the 45-day period.

Keeping the Exchange on Track

The Exchange Cooperation Clause is an important procedural safeguard — not an identification tool. It ensures cooperation between parties and enables the Qualified Intermediary to perform their duties effectively.

Disclaimer
This article is for informational purposes only and does not constitute tax or legal advice. Investors should consult with their tax advisor, attorney, or Qualified Intermediary to ensure compliance with current IRS regulations.