Inexperienced Qualified Intermediary Kills Taxpayer's 1031
A recent case highlights the importance of using caution when choosing a qualified intermediary (QI) to facilitate your 1031 tax-deferred exchange. This case was not a tax case but a case that involved the taxpayer seeking damages from the QI. In Kreisers, Inc., et al. v. QI Title Limited Partnership d/b/a QI Title and d/b/a The Title Resource Network (SD 2nd Cir.), a title company also provided qualified intermediary services.
Kreisers was an s-corp that wanted to structure an improvement exchange that would allow them to use 1031 exchange funds to make improvements to the replacement property before they took title from the seller. An improvement exchange is a commonly used exchange strategy but it does take quite a bit of planning to structure properly.
The improvements must be completed before title of the replacement property is conveyed to the exchanger so the QI or Exchange Accommodation Titleholder (EAT) usually acquires the replacement property directly from the seller and makes the improvements before conveying the improved property to the Exchanger before the end of the 180-Day Exchange Period.
There were a number of mistakes made by the QI in this case including the QI hopefully just inadvertently committing tax fraud .
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Tax Reform & 1031 Exchanges
Legislative Update
With the Way and Means Committee expected to release a tax reform proposal in the near future, it is a possibility that a draft proposal may emerge with an unfavorable 1031 provision in it. Regardless of the treatment of section 1031 exchanges in various tax reform proposals, legislating tax reform will be a long and methodical process involving careful deliberation and modifications to achieve consensus. The 1031 industry looks forward to continuing to work with Chairman Camp and the rest of the Members of the Ways and Means Committee to illustrate the importance of section 1031 exchanges to our economy. View the FEA's Impact of IRC 1031 on the Economy White Paper 1031 CORP. will continue to keep you informed of any potential threats to section 1031 and how you can help.
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Tax Case Confirms Leasehold Interest of 30 Years or More Like-Kind to Real Property
In VIP's Industries Inc. et al. v. Commissioner; T.C. Memo. 2013-157; No. 18584-11, the Court agreed with IRS that a leasehold interest of less than thirty years is not like-kind to real property. VIP Industries, Inc. owns and operates motels. Using a qualified intermediary (QI), VIP sold its interest in a ground leased motel and acquired fee interest in two replacement properties. The lease had an initial term of 33 years with 21 years and 4 months remaining.
Treas. Reg. �1.1031(a)-1(c) allows the exchange of a 30 year or more leasehold interest for other real property. However, VIP argues that this was just a safe-harbor (which generally means the IRS will not attack the transaction if you follow this) and did not mean that you could not successfully exchange a leasehold interest of less than 30 years for real property. The Court cited a number of cases where taxpayers were denied 1031 tax-deferred treatment when exchanging leasehold interest less than 30 years.
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Connecticut QI Law Takes Effect Tomorrow
Connecticut signed a Qualified Intermediary (QI) Law that takes effect on October 1, 2013. Among other things, the laws place requirements on how a QI can hold exchange funds and requires certain amounts of insurance. Click to access the Public Acts and view the full law. Since both of these Public Acts contain more than the QI law, I have highlighted the QI sections in yellow. 1031 CORP. welcomes such laws and will be in compliance with this new law without changing any of our current exchange procedures.
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Trending this Month...
Relinquished Properties Selling Quickly
This past month, we have had a number of clients pleasantly surprised by how swiftly they found a buyer for a recently listed property. Many of those quickly selling properties are in resort areas.
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Join us for our complementary Wealth Building Webinar Series designed to help you build and preserve wealth. Click on the link below for webinar descriptions and to register.
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Message from our President
| Margo McDonnell |
Dear Friends,
This week, Rich Heller, Joe Szajnecki and I are heading to the Annual FEA Annual Conference in Denver. The theme of this year's conference is to [re]connect with fellow FEA members and our affiliates, [re]focus on growing our business and [re]fresh our knowledge of section 1031. The Federation of Exchange Accommodators (FEA) is the national trade association for 1031 practitioners. As many of you know, I have long been actively involved in the FEA. Next week, I will also begin my 14th term on the Board of Directors and remain in awe of the commitment of our Board and Government Affairs Committee to the 1031 industry. I feel very fortunate to have a role in FEA's mission to protect and serve our clients and the 1031 industry. I'm looking forward to a great trip!
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About 1031 CORP.
Serving as a nationwide qualified intermediary for 1031 tax-deferred exchanges since 1991, 1031 CORP. strives to provide a superior exchange experience for our customers and their advisors. We provide our customers with enhanced security of funds, knowledgeable exchange professionals and a commitment to keep the exchange process simple for our customers and their advisors. Every member of the exchange team is a Certified Exchange Specialist� and has the experience and expertise to facilitate even the most complex exchange transaction, including reverse, improvement and personal property exchanges. Additional information can be found at www.1031CORP.com. |
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Margo McDonnell, CES�
Certified Exchange Specialist�
President
1.800.828.1031 ext. 212
Mobile: 610.680.6896
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Sue Umstead, CES�
Certified Exchange Specialist�
Senior Vice President
1.800.828.1031 ext. 208
Mobile: 610.755.8520
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Marissa LoCascio, CES�
Certified Exchange Specialist�
Senior Exchange Officer
1.800.828.1031 ext. 210
Mobile: 610.742.4351
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Richard Heller, Esq., CCIM, CES�
Consultant
1.800.734.1031
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Bettye J. Matthews, CPA
Consultant
1.800.680.1031
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Joseph F. Szajnecki, CES�
Consultant
1.800.734.1031 |
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