IRS Alerts Concerning 1031 Exchanges

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Strategic 1031 Exchange Advisors provides expert consulting services which includes information on IRS rulings and revisions concerning all types of 1031 Exchanges. Please check back often for information that can help you to avoid costly mistakes, and to get the most from your 1031 Exchange.

Taxpayers Still Await Word on Potential Changes to the 1031 Industry
The Wall Street Reform and Consumer Protection Act (“Act”) was signed into law in 2009 to protect consumers from perceived abuses by providers of financial services including lenders, credit card companies, banking institutions. A little known provision in the Act includes a requirement to review the 1031 exchange industry, specifically Qualified Intermediary (“QI”) operations, and to make recommendations to Congress on any regulatory oversight that might be necessary and prudent for the protection of consumers. This inclusion was a direct response to the numerous QI’s who went bankrupt between 2007-2009 after engaging in unscrupulous activities that resulted in the loss of client exchange proceeds.

The Act created a new regulatory body called the Consumer Financial Protection Bureau or CFPB. The Director of the Bureau is required to conduct a review of the 1031 Exchange industry and report back to Congress within one year on any proposed legislation and/or regulations that should be in effect for the benefit of consumers who engage the services of a QI to facilitate a 1031 exchange transaction. Proposed legislation or regulatory oversight of the 1031 Exchange industry must be implemented within the following two years after approval.

Revenue Procedure No. 2010-14 (Rev. Proc. 2010-14)
Guidance on Failed 1031 Exchanges Caused by the Failure of the Qualified Intermediary

This Revenue Procedure outlines the IRS position that a taxpayer who in good faith sought to complete the exchange using the QI, but who failed to do so because the QI defaulted on the exchange agreement and became subject to a bankruptcy or receivership proceeding, should not be required to recognize gain from the failed exchange until the taxable year in which the taxpayer receives a payment attributable to the relinquished property. Please click here to find out more about this revenue procedure.

Revenue Procedure No. 2008-16 (Rev. Proc. 2008-16)
Safe Harbor for Like-Kind Exchange of Dwelling Unit
This revenue procedure provides a safe harbor under which the Internal Revenue Service will not challenge whether a dwelling unit qualifies as property held for productive use in a trade or business or for investment for purposes of Section 1031 of the Internal Revenue Code. Please click here to find out more about this revenue procedure.

IRS Issues Fact Sheet No. 2008-18 (IRS FS-2008-18)
Helps Taxpayers Better Understand How to Complete a 1031 Exchange
The Internal Revenue Service has released a Fact Sheet (FS-2008-18) on Like Kind Exchanges Under IRC Code Section 1031. This is the first time that the IRS has actually issued a Fact Sheet on 1031 exchanges and it is designed to assist taxpayers in understanding how to properly structure and successfully complete a 1031 exchange.

IRS Fact Sheet No. FS-2008-16 was produced and released by the IRS as a direct result of a report issued back in September 2007 by the Treasury Inspector General reporting and filing for like-kind exchanges, and for poorly defining when a 1031 exchange of vacation property and/or second homes would qualify for tax-deferred exchange treatment under Section 1031 of the Internal Revenue Code. Click here to read more detail.

IRS Issues Advice: Taxpayer May Engage in a Reverse Exchange and a Forward Exchange Using Same Relinquished Property
Although a commonly accepted practice within the industry for many years, the IRS has formally granted its approval for taxpayers to start a reverse 1031 exchange and end with a forward 1031 exchange using the same relinquished property. The taxpayer can utilize an AT to park a potential replacement property, then sell relinquished property and then subsequently acquire a second replacement property on the back leg of the transaction. Click here to read more detail.