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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 .
Tax Reform & 1031 Exchanges
Legislative Update
Library of Congress
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.
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.

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.

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. 

Wealth Building Webinars
webinar
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.
  

REGISTER NOW! 

Thursday, October 3, 2013;  12:00 - 12:45 PM EST 

1031 Exchanges Made Easy 

 

Thursday, October 10, 2013;  12:00  - 12:45 PM EST  

Capital Gain Misconceptions & their Unexpected Tax Bill 

  

Thursday, October 17, 2013;  12 - 12:45 PM EST

Advanced 1031 Exchange Topics 

 

Thursday, October 24, 2013;  12 - 12:45 PM EST

1031 Guide for Title & Escrow Officers 

 

Message from our President
Margo
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!

Best Regards,
Margo
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.
In This Issue
Inexperienced Qualified Intermediary Kills Taxpayer's 1031
Tax Reform & Section 1031: Legislative Update
Tax Case Confirms Leasehold Interest of 30 Years or More Like-Kind to Real Property
Connecticut QI Law Takes Effect Tomorrow
Trending this Month
Wealth Building Webinars
Message from our President
Article Exchange

Margo McDonnell

Margo McDonnell, CES
Certified Exchange Specialist
President
1.800.828.1031 ext. 212
Mobile: 610.680.6896
 
Find me on Facebook
View my profile on LinkedIn

1031 CORP. Logo

Sue Umstead, CES 
Certified Exchange Specialist
Senior Vice President
1.800.828.1031 ext. 208
Mobile: 610.755.8520

Find me on Facebook
View my profile on LinkedIn

1031 CORP. Logo

Marissa LoCascio, CES
Certified Exchange Specialist
Senior Exchange Officer
1.800.828.1031 ext. 210
Mobile: 610.742.4351

Find me on Facebook
View my profile on LinkedIn

Rich Heller

Richard Heller, Esq., CCIM, CES
Consultant
1.800.734.1031 
  
Find me on Facebook
View my profile on LinkedIn

 Bettye Matthews

Bettye J. Matthews, CPA
Consultant
1.800.680.1031 
 
View my profile on LinkedIn

Joe

Joseph F. Szajnecki, CES�
Consultant
1.800.734.1031 
Article Exchange

Following are articles related to 1031 exchanges, taxes, real estate and related topics you may find of interest.

 

All-cash deals make huge comeback

Inman News 

September 26, 2013      

 

U.S. Mortgage Applications Grew 5.5% in Latest Week -- MBA  

The Wall Street Journal

September 25, 2013

 

Flush With Cash and Making Deals, Investors from South Korea, Norway Targeting U.S. Real Estate 

CoStar

September 11, 2013

 

Commercial Real Estate Markets Show Steady, Moderate Growth 

National Association of REALTORS� News Release

August 26, 2013 

 

If you have an article you would like to share, please forward it to Margo McDonnell,CES� and we'll include it in next month's reading list.
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