WHY DO YOU AND YOUR CLIENTS NEED A TAX OPINION FOR YOUR 1031 EXCHANGE?

HIGHLIGHTS:

* Complying with Circular 230 for Section 1031 Exchanges

* Tax Expert: How is this Defined?

* Purpose and Topics Covered in Tax Opinion Letters

As we know, the IRS is on the warpath regarding those super rich guys and their slick tax advisors.  What you may not know is that the IRS has increased the tax penalties for the taxpayers and for their advisors. Guess what? Based on updates in Circular 230, Section 1031 exchanges are now “Tax Shelters”.

Since Section 1031 exchanges are tax shelters, advisors need to comply with Circular 230. So, from today forward, when your client does an exchange, you need to make sure: (1) that your 1031 exchange QI (Qualified Intermediary) is a Tax Expert in Section 1031 Exchanges and Federal Tax Law, and (2) that the expert will guarantee that your 1031 exchange is correct with a tax opinion letter.

A Tax Expert is defined as a professional advisor, who is an expert in Section 1031 and any other relevant areas of federal tax law. The Treasury Regulations specifically provide that an independent tax attorney ca provide a tax opinion, in connection with a Section 1031 Exchange, to carry out the Section 1031 transaction.

The purpose of a tax opinion letter is to consider all material tax issues involving a reasonable possibility of challenge by the IRS. A material tax issue is any income tax issue relating to the tax shelter that would have a significant effect or contribution in sheltering taxes by providing deductions in excess of income or credits in excess of tax attributable to the shelter.

In addition to considering all material tax issues, a tax opinion letter needs to address three other topics: (1) any other tax issues that might have a significant impact on an investor under reasonably foreseeable circumstances; (2) whether or not the investor will prevail on the merits of each material tax issue; and (3) fully explain any potential problems with the investor’s direction.

What does that mean to you and me? If you advise a client on a 1031 exchange, AND if the client inadvertently doesn’t tell you all the facts (1)then you will be liable both to the client and the IRS for penalties. Since the client did not get a tax opinion, they cannot rely on your advice to protect against tax penalties. The client can then say to you, "Why didn’t you tell me to get a tax opinion?"

[Lights dim, enter stage left, the tax professionals from Strategic Property Exchanges, LLC.]  Our tax opinion guarantees to the IRS that your Section 1031 exchange is a valid, iron-clad 1031 exchange and they can bother someone else. This tax opinion can only be provided by an actively practicing tax attorney knowledgeable in all areas of federal tax law. I am a Board certified Tax Specialist and have been an actively practicing tax attorney for 20 years.   We provide tax opinions as part of our full service for investors purchasing and selling investment property as a 1031 exchange.

STEVE'S ANSWERS TO ACTUAL "QUESTIONS OF THE MONTH" FOR 1031 EXCHANGES 2

• You cannot sell your apartment building and use the proceeds to purchase your existing home from yourself.
• To avoid taxation on your gain, you have to reinvest the entire sale price, not just the profit on the sale.

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Stephen L. Robison, J.D., LL.M.

What Makes Strategic Property Exchanges Different?

Our 7 Service Guarantees!

#1 - Exchange funds fully insured

#2 - Unlimited consultation and tax planning

#3 - Protection with Errors and Omissions policy

#4 - Covered tax opinion protects client and advisor

#5 - Complies with Circular 230, FASB FIN 48, Section 6662, Schedule M-3, and Sarbanes Oxley 404

#6 - Advisor protection from IRS sanctions and penalties relating to Circular 230

#7 - IRS "audit-proof" reporting package included

The most complete protection and security in the industry!

Coming in next months issue:

Helping you and your clients understand the hidden 80%