Federally Insured Qualified Intermediaries: “1031 Regulation Act of 2007″ Is This The Answer To 1031 Tax Group Embezzlement Cases?

In a shocking and eye opening plea from a long time trusted reader, the following comment was left as a request for publication. In August of 2007, California State Congresswoman Zoe Lofgren (somebody I took to task) introduced a bill designed to remove the possibility of embezzlement in a 1031 Exchange transaction like the Ed Okun 1031 Tax Group or Donald McGhan Southwest Exchange cases

Analysis: 1031 Regulation Act of 2007 is an alteration to IRS Tax code dated back to 1986. By requiring federal insurance for every 1031 Exchange, the government then becomes responsible for law enforcement, certification, and approval of QIs going forward.

Fallout: Would the large monolith title insurance companies such as First American take issue with such a law? It would appear that those companies would lose their insurance premiums to government controlled, insured 1031 Exchange insurance; or would the large title insurers be forced to acquired federal insurance riders themselves? Only time will tell–that is if this bill ever sees the light of day!

The following is the comment left on deansguide:

“Dean: Please post this information of a bill introduced in Congress last August. It’s to protect 1031 exchanger’s money through a federally insured program. Though it doesn’t help us current train wreck victims, it will hopefully keep it from happening to others in the future. People need to contact their congressmen in support of the bill.

http://thomas.loc.gov/cgi-bin/query/z?c110:H.R.3420:

H. R. 3420
To amend the Internal Revenue Code of 1986 to require the use of Federally insured intermediaries for nonrecognition treatment on like-kind exchanges involving cash to be used to acquire the replacement property.

IN THE HOUSE OF REPRESENTATIVES

August 3, 2007
Ms. ZOE LOFGREN of California introduced the following bill; which was referred to the Committee on Ways and Means

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A BILL
To amend the Internal Revenue Code of 1986 to require the use of Federally insured intermediaries for nonrecognition treatment on like-kind exchanges involving cash to be used to acquire the replacement property.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `1031 Regulation Act of 2007′.

SEC. 2. FEDERALLY INSURED INTERMEDIARIES REQUIRED FOR LIKE-KIND EXCHANGES INVOLVING CASH TO BE USED TO ACQUIRE REPLACEMENT PROPERTY.

(a) In General- Subsection (a) section 1031 of the Internal Revenue Code of 1986 (relating to exchange of property held for productive use or investment) is amended by adding at the end the following new paragraph:

`(4) REQUIRED USE OF FEDERALLY INSURED INTERMEDIARIES FOR EXCHANGES INVOLVING CASH TO BE USED TO ACQUIRE REPLACEMENT PROPERTY- Paragraph (1) shall not apply to any exchange as part of which cash is received by the taxpayer which is to be used to acquire like-kind property unless such cash is at all times before being so used held as a deposit in–

`(A) any insured depository institution (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)), or

`(B) any insured credit union (as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752)).’.

(b) Effective Date- The amendment made by this section shall apply to transfers after the date of the enactment of this Act in taxable years ending after such date.”

Dec 31, 4:01 PM —