A 1031 Exchange can be a very useful tool for the property owner who wants to defer capital gains on the sale of a real estate property.
Recently the Wall Street Journal and today Realtor Magazine had a great article about investors running into trouble with the IRS because of misappropriation of funds by the qualified intermediary or QI the investors used to manage the 1031 exchange funds!
If you know of any clients who utilize this tool, you may want to alert them to this situation! In the last year two QI's have misappropriated client funds and the IRS is looking at the investors as well as the QI's.
It is unclear, other than losing the tax deferral, if the investors will face any other penalties.
Your thoughts and comments are welcome!
It is important to know that the two gentlemen behind the two QI losses this year specifically got into the 1031 exchange QI industry in the last 2 years to use the money for their other business interests. They bought their way into the industry for "cheap money" as one of them put it.
In fact, one of the two actually changed the QI 1031 Exchange agreements to provide for them to borrow the clients' 1031 exchange funds for their own use and clients signed the agreements! It is so important for the client to read any agreements before they sign.
Here is a link to an article that I wrote on selecting a SAFE Qualified Intermediary: http://www.exeter1031.com/Selecting_SAFE_Qualified_Intermediary.aspx.