Excerpt from Practical US/Domestic Tax Strategies by J. Gregg Miller, Timothy B. Anderson, Laura Warren and Michelle M. Parten (Pepper Hamilton LLP)
What happens when you engage in a tax-free section 1031 exchange and your qualified intermediary (QI) declares bankruptcy while holding the proceeds from the sale of your property? According to a Virginia bankruptcy court, unless the exchange agreement is drafted properly, the transaction proceeds held by the QI may become part of its bankruptcy estate, resulting in you becoming a general unsecured creditor.
This was the case for an exchanger with proceeds held in segregated bank accounts of LandAmerica 1031 Exchange Services, Inc. (LandAmerica), acting as its QI, at the time LandAmerica filed for bankruptcy. The court concluded that the language of the exchange agreement disclaimed any interest of the exchanger in the proceeds and held that the use of segregated bank accounts did not give rise to a trust. Thus, the proceeds were treated as part of LandAmerica’s bankruptcy estate.
Under Section 1031 of the Code, no gain or loss is recognized when property is exchanged solely for like-kind property. While this exchange of property may take place simultaneously, the Code allows taxpayers to defer the acquisition of the replacement property for 180 days from the transfer of the relinquished property, which is known as a forward exchange. In forward exchanges, taxpayers typically assign the contract for the sale of their relinquished property to an entity known as a QI, which receives the proceeds and uses them to purchase the replacement property on behalf of the exchanger.
Read More about Alternatives to Using a QI to Avoid Risks Related to Section 1031 (free)
Tuesday, June 2, 2009
Addressing Risks of Intermediaries Filing for Bankruptcy in Section 1031 Exchanges
Labels:
IRS,
US Tax,
US Treasury
Subscribe to:
Post Comments (Atom)
4 comments:
I believe this is one of the such a lot significant info
for me. And i'm happy studying your article. However should remark on few normal issues, The website style is ideal, the articles is truly excellent : D. Good activity, cheers
Visit my web site: vietnam weather
We are a bunch of volunteers and opening a new scheme in our community.
Your web site offered us with valuable information to work on.
You have performed a formidable process and our whole neighborhood will
probably be thankful to you.
Feel free to visit my web page; tours in vietnam
I do not leave a lot of comments, however i did a few searching and wound up here "Addressing Risks of Intermediaries Filing for Bankruptcy in Section 1031 Exchanges".
And I actually do have 2 questions for you if it's allright. Could it be simply me or does it look as if like a few of the remarks look as if they are coming from brain dead visitors? :-P And, if you are writing at other online social sites, I'd like to keep
up with everything new you have to post. Could you list of every one of all your public sites like your
twitter feed, Facebook page or linkedin profile?
Also visit my web site ... Vietnam vacation
I am really impressed along with your writing abilities as neatly as
with the structure on your weblog. Is that this a paid topic or did you modify
it yourself? Anyway keep up the nice quality writing, it is uncommon to look a
nice blog like this one today..
Look at my homepage: sosyal.tekbilim.com
Post a Comment