HIGHLIGHTS:
* What Are Several Considerations for Choosing Your Qualified Intermediary?
* What is the Proper Cost of a Section 1031 Exchange?
As an experienced Qualified Intermediary, I am called upon to help advisors in many situations. Two of the most challenging situations are assisting with 1031 Exchanges that have failed, or assisting in averting the failure of a 1031 Exchange, in which the Qualified Intermediary has not been educated in the subtleties of tax law.
Section 1031 Exchanges are 95% tax law and 5% timekeeper. Unfortunately, some Qualified Intermediaries are neither timekeepers nor tax advisors.
A client, who was meeting in my office yesterday, summarized the issue clearly when she asked, “How do I know which Qualified Intermediary to Choose?” She had been given the names of various QIs, an individual employed by a Title Company, a Real Estate Attorney, a Litigation Attorney, and myself.
Tax opinions are important in Section 1031 exchanges, since they guarantee to the IRS that the Exchange is a valid, iron-clad 1031 Exchange. The IRS states in Circular 230 that “only attorneys with a knowledge of all areas of federal tax law may issue a tax opinion” as to whether a tax transaction qualifies. This is the case with Section 1031 Exchanges. Our tax opinions protect you from malpractice claims and your client from the IRS. Rely on Strategic Property Exchanges, LLC and Stephen L. Robison, Esq. for all your 1031 Exchanges.
Are Qualified Intermediaries usually practicing tax attorneys? No. Many QIs simply do not have the experience and expertise to determine whether a partnership can distribute its real estate to its partners 3 days before the closing.
You know in your own practice that a slight change in the facts, changes the result of the transaction. This is especially true in Section 1031 Exchanges. Our role is to advise our clients and their advisors as to their potential options and the tax consequences, as well as to maintain the documentation thoroughly.
WHAT IS THE PROPER COST OF AN EXCHANGE, ANYWAY?
It is a well known fact in the exchange business there are no licensing requirements to call yourself a Qualified Intermediary. Since many QIs in the exchange business lack the education or training to stand out, the only distinguishing factor is low cost.
As a Board Certified Tax Attorney with 20 years experience, I believe that knowledge of federal tax law and experience in Section 1031 Exchanges are the best criteria for selecting a Qualified Intermediary. Long after the Exchange has been completed, no one will remember the QI fee paid if the IRS fails the Exchange on audit.
We view our role in a Section 1031 Exchange as proactive managers and monitors of the Exchange. Unlike most Qualified Intermediaries, we take FULL responsibility for each and every Section 1031 Exchange. We know that you are busy advisors and do not have the time or the presence of mind to watch each and every detail in a Section 1031 Exchange. That is what we do for you and your client. For example, does the Settlement statement include prepaid rents and security deposits that will cause the client to be taxed on the sale? Does the client intend to use the Exchange proceeds to pay for loan charges, which would cause those monies to be taxed?
Let me illustrate the value of knowledge and experience with this story. A well known rich businessman's wife broke her hip. The businessman got the best bone surgeon in town to do the operation. The operation consisted of lining up the broken hip and putting in a screw to secure it. The operation went fine, and the doctor sent the business man a fee for his services of $5000. The businessman was outraged at the cost, and sent the doctor a letter demanding an itemized list of the costs. The doctor sent back a list with two things: 1 screw $ 1 Knowing where to put it in $4999.
Rely on Strategic Property Exchanges for all your 1031 exchanges to avoid the IRS knowing where to put the screws to your clients.
