UPCOMING SEMINARS

April 30, 2008
Des Moines, IA

Introduction to
Section 1031 Exchanges
Event# 43573
8:30 A.M. - 4:40 P.M.

For more information
visit the NBI web site at www.nbi-sems.com
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May 7, 2008
Ohio Society of CPAs Webinar

How a Section 1031 Exchange Can Benefit Your Clients
Course# 85000HT
1:00 P.M. - 2 P.M.

For more information visit the Ohio Society of CPAs web site at www.ohiocpa.com
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May 15, 2008
Louisville, KY

Louisville Bar Association
9:00 - 12:00 P.M.

Your Trusted
Section 1031 Advisor Newsletter

Do's and Don'ts: FOLLOWING THE IRS RULES FOR REVERSE EXCHANGES

Some of the best newsletter ideas come from questions that come up from time to time. Recently, I was asked about the IRS rules related to Reverse Exchanges.

Why Use a Reverse Exchange? The best reason for utilizing Reverse Exchanges is to settle all the due diligence issues arising out of the purchase of the property before the 45 day and 180 day deadlines begin.
DO: Consider consultation with a Tax Attorney to assess the client's situation and determine the type of exchange that will provide the client with the best tax advantage.

"Exchange Accommodation Titleholder" (EAT): Under Revenue Procedure 2000-37, in order to enter into a Reverse Exchange, an "Exchange Accommodation Titleholder" (EAT), who is unrelated to the taxpayer, acquires either the relinquished property [property to be sold] or the replacement property [property to be acquired]. The EAT holds such property for up to 180 days until the buyer is found for the relinquished property.
DO: Watch that both properties do not end up in the taxpayer's name at the same time.
DO: Allow enough time for recording.

45 Day Identification. The relinquished property must be identified within 45 days from the EAT's obtaining legal title under rules similar to a forward deferred exchange.
DO: Make sure that the 45 days do not slip away from you.
DO: Make sure that the legal title is either faxed or e-mailed to clearly show the date.
DO: Watch for typographical and other errors in the description.
DO: Make sure that "and/or" is used to allow for the sale of one and/or more than one property to be sold, if more than one property is noted.

Bank Loans. In the case where a bank loan was used to acquire the replacement property:
DO verify that the loan amount negotiated with the Bank does not exceed the maximum permitted debt, based on the existing indebtedness of the relinquished property. This might occur where the pre-approved debt is used to construct improvements later after the exchange period has closed or to take cash out of the transaction. This will cause the taxpayer to be taxed on the excess debt on the exchange.

Property Management: The taxpayer can manage the property, as well as guarantee some or all of the obligations of the EAT, including secured or unsecured debts, or indemnify the EAT against costs and expenses.
DO pay the Bank loan, as agreed, and pay costs and expenses on a timely basis.

If these items are not paid, the Bank and/or other vendors can and will pursue the EAT for payment in the future, especially where the taxpayer may have defaulted on their obligations.

Payments to Taxpayer: While the taxpayer or a disqualified person can supervise improvement of the property, act as a contractor, or otherwise provide services to the EAT with respect to the property:
DO make sure that the taxpayer does not receive payments during the term of the 1031 Exchange. Violation of the constructive receipt rules can cause the entire 1031 transaction to be taxable.

How can you know if your exchange is following all of the IRS rules related to 1031 Exchanges? Talk to the professionals at Strategic Property Exchanges, LLC. We understand the complex rules and updated revenue procedures related to Section 1031 Exchanges. We can help simplify this information for you and your clients. Stephen L. Robison, Esq., is a Qualified Intermediary and is a full time practicing tax attorney, and is Board Certified as a Federal Tax Specialist. Mr Robison, and our team of professionals, will work with you and your clients. They will creatively and strategically assist you and your client with reverse exchanges in order to maximize the tax deferral opportunities.