Although the major news media both print and electronic have ceased to beat the drums for answers to fraud/embezzlement in the 1031 Exchange industry, many consumers remain interested in finding answers to the question: When will it be completely safe to invest your life savings with a Qualified Intermediary performing a 1031 exchange? Will we always feel like “Jed Clampett” dealing with “Milburn Drysdale”? Will the Donald McGhans and Ed Okuns of the world always walk away unscathed?
Like many people who have commented here in the past, a new voice has popped up with what appears to be sage advice. The following is a comment received today from “Jay.” Jay’s comments were in regards to my article: — Southwest Exchange: “Uh, Uhm. . . uh. . .” $100,000,000 Reasons to Perform Due Diligence on Your 1031 Exchange Company
Read it and give us feedback about how you feel about this vital matter:
- I’m not an attorney, but I’ve read a lot about 1031 exchanges. Alexandra is correct about the “constructive receipt of funds” issue. The IRS rules prohibit the taxpayer from having control of the funds, actual or constructive, during the exchange period. Starker may have received interest, but remember that Starker was a pioneer in the process. After Starker’s case and until the IRS published rules for deferred 1031 exchanges (as I recall around 1990, give or take a year), most attorneys and CPA’s recommended to their clients that they avoid receiving interest because of the constructive receipt of funds issue. This position changed with the publication of the rules which included clarification that the taxpayer could receive interest on funds held by a Qualified Intermediary. I think that Rob also makes a good point that people should consider both the QI’s fee and interest policy when calculating the true cost of the QI’s services. Congress’s position on 1031’s in general is that because of “like-kind” substitution, the nature of the investment does not change, only the security for that investment. Therefore, a taxable event has not occurred. That being said, it would really simplify things if Congress and the IRS would relax the “receipt of funds” prohibition like they do in some other section of the Internal Revenue Code. Until that happens (which might be never), look for company ownership and financial strength in picking a QI as has been suggested by others above.Comment by Jay — October 8, 2007 @ 10:49 pm |
Please let us know how you feel: Like a Jed Clampett, a Ed Okun, or a Milburn Drysdale?