1031 Corporation Exchange Professionals Celebrates 20 Years

On April 27, 1990, company founder Larry Jensen CPA, formed 1031 Corporation Exchange Professionals to assist a taxpayer with an exchange of real estate under the provisions of Code Section 1031. There were few or no Qualified Intermediaries in Colorado at the time and it was difficult for taxpayers to implement a qualifying exchange under IRC §1031. Mr. Jensen felt that 1031 Corporation could be helpful as a facilitator.

In 1991, the IRS issued the “Safe Harbor” Regulations establishing a greater market for this type of service. 1031 Corporation was already established and began to market exchange services locally. Many of the clients, Corporation worked with in the early years were unacquainted with a “1031 Exchange.” 1031 Corporation quickly became a leader in introducing tax professionals, Realtors, title companies and attorneys to the simplified tax-deferred exchange procedures on the sale and purchase of real and personal property investments.

Over the years, because of its commitment to provide friendly, professional service, 1031 Corporation grew from its humble beginnings. With increased knowledge from tax and real estate professionals, repeat and referred client business and a growing real estate market, 1031 Corporation developed into one of the nation’s leading exchange intermediaries. In the 20 years of business, 1031 Corporation has facilitated thousands of exchange transactions ranging from the simple real property exchange to the complex, multiple asset exchange.

In 2006, recognizing that clients deserve assured safety of their exchange funds and competent professional services, 1031 Corporation became a subsidiary of FirstBank. With it’s extensive reputation of friendly customer service, safety and security, FirstBank and 1031 Corporation were a natural fit. As Colorado’s largest locally-owned bank - with over $10 billion in assets and 130 branches in Colorado, Arizona and California – FirstBank continues to expand 1031 Corporation’s exchange services nationwide.

Since 1991, 1031 Corporation and its staff of Certified Exchange Specialists have assisted clients with leading-edge services and consultation that continues today. As we celebrate our 20th anniversary, 1031 Corporation Exchange Professionals wishes to thanks all of our clients, and business partners for the confidence they have placed in our services over the years. We pledge to continue serving our clients at the highest level of competence and expectations.

Please give us a call at 888-367-1031 or visit our website if we can be of any assistance.

Texas Attorney charged in 1031 QI theft

In yet another case of an individual getting desperate, a Texas attorney in McAllen has been charged with the theft of $300,000. McAllen police believe Rogelio Ibañez, 44, stole the money from a real estate investment firm that had hired him to hold the funds as part of a 1031 exchange.

In June, the investment firm filed a complaint with the state bar association that resulted in revocation of Ibañez's attorney license. However, they only filed criminal charges last month.

Unfortunately, we've seen this too many times before. One thing that appears consistent, as well, is that investors that begin questioning where their funds are held tend to hold off filing criminal charges - presumably hoping that they can "work with" the QI to get their funds returned. In too many cases, most the money is gone and holding off filing criminal charges only further damages their chances.

As we've indicated before, for most states, it's an "investor beware" situation. Nine states now have taken action to require Qualified Intermediaries to meet certain minimum standards but the laws can only go so far. So how does one protect themselves?

As we've blogged about numerous times, transparency - and this really goes for any "investment" - is paramount. Do you know where your QI is holding your funds? Is your QI willing to give you access to view the deposit of funds? Does your QI provide the option of setting up a Qualified Escrow between the bank, the QI and you?

Of equal importance is the segregation of held funds. Does your Qualified Intermediary hold the funds in a separate bank account - and by that we mean not only separate from their operating accounts but separate from other clients' funds? To many will say they segregate between their operations and their trust funds when, in reality, they pool investor funds into a combined investment account. Beware, the "subaccounting" systems some QI's does not protect you when there are problems.

We also believe having the backing of a financially sound parent company - whether this be a bank, title company or financially sound owners is also something you can check out. Is your Qualified Intermediary willing to share the financial statements of their ownership? Is your QI regulated by bank regulators or state examiners? Are these financials audited?

All good questions to ask. Unfortunately, too many investors looking to do a 1031 exchange don't ask these questions or blindly trust the person with whom they are entrusting their substantial sale proceeds. You should be asking the same questions you would anytime you "invest" with a company.

To speak to us about any of these questions, or to open up your exchange with Certified Exchange Specialists 1031 Corporation, a subsidiary of FirstBank, please contact us at 888-367-1031.

1031 Exchange Converted to Primary Residence Court Ruling

Last week a U.S. Tax Court ruled (T.C. Memo 2010-64) that replacement property acquired in a 1031 exchange did not meet the "held for" investment requirement after the taxpayer moved into the property two months after acquiring it.

In the fall of 2002, a couple placed an offer on a single family home in Georgia contingent upon the sale of their primary residence in California. A few months later the couple sold their home and moved in with some in-laws living in Georgia. In the spring of 2003, the couple sold some rental property in California and used a 1031 exchange through a Qualified Intermediary to complete the purchase of the Georgia single family home. The couple placed a "for rent" advertisement in a neighborhood newspaper for a few months, began work to finish the basement and, two months after acquisition, moved out of their in-laws house and moved into the Georgia home.

In the Tax Court's ruling against the taxpayers, they noted the short time frame between the acquisition and their conversion to a primary residence. They also noted the fact that they had made the purchase of the Georgia property contingent upon the sale of their California primary residence (and not the rental property). They dismissed, as irrelevant or non-persuasive, the facts presented by the couple that the Georgia purchase was not extravagent in relation to California property values or the fact that they moved in with in-laws. In its ruling the Court found that the taxpayers had contemplated the use of the Georgia property as a personal residence before the exchange. The couple was held liable for the tax payment deficience in 2003 and 2004 as well as accuracy-related penalties under section.

While conversion of an investment property to a primary residence or vacation home is permissible, this ruling points out that the held-for-investment intent should be clearly evidenced from the start. If you are considering the possibility that an investment property may some day become your primary residence or vacation home, substantial documentation of your investment efforts should be evident. While Section 1031 of the Code does not clearly define the amount of time required to hold something for investment purposes , previous cases and rulings have shown a year (or even better, two years) should usually pass between the acquisition, use as an investment property and conversion to a personal use.

If you are contemplating a 1031 exchange and are considering the future personal use of investment property, you should consult with your tax or legal professional. We also hope you will give 1031 Corporation a call at 888-367-1031 if we can be of any assistance with your 1031 exchange.