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William L. Exeter
President and Chief Executive Officer
Exeter 1031 Exchange Services, LLC
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FOR IMMEDIATE RELEASE
IRS Chief Counsel Issues Letter on Failed 1031 Exchanges
Discusses Income Tax Effects on Failed 1031 Exchanges Due to a Failed QI
June 27, 2008--San Diego, California--The IRS's Office of Chief Counsel issued an informational letter (INFO Letter No. 2008-0021) regarding the income tax consequences of a failed 1031 exchange transaction due to the failure of the Qualified Intermediary (also referred to as a QI) that was administering the 1031 exchange.
The IRS's Office of Chief Counsel was responding to an inquiry made by Congressman Delahunt of Massachusetts on behalf of his constituents that had lost money through a failed 1031 exchange transaction because their 1031 exchange Qualified Intermediary had embezzeled their 1031 exchange proceeds, failed and filed for bankruptcy law protection.
The constituents asked if they could still defer the depreciation recapture and capital gain on thei sale of their relinquished property
when they were not able to acquire like-kind replacement property since their lost their 1031 exchange funds when their Qualified Intermediary failed.
The Internal Revenue Service first
recited that the depreciation recapture and capital gain from the sale of the real estate investor's relinquished property is taxable under Section 61 of the Internal Revenue Code unless Section 1031 of the Internal Revenue Code applies.
It further stated that the 1031 exchange fails and any depreciation recapture and capital gain realized on the sale of the real estate investor's relinquished property must be recognized and reported if the Qualfied Intermediary (QI) fails to acquire like-kind replacement property and convey it to the real estate investor within 180 calendar days of
the conveyance of the relinquished property.
The Internal Revenue Service's letter continues that if the real estate investor had sustained a loss during the taxable year (and that insurance does not cover),
the real estate investor could write off the loss from income under Section 165(a)(1) of the Internal Revenue Code if the facts and circumstances surrounding the 1031 exchange transaction show that the real estate investor sustained the loss as a direct result of the actions of the failed Qualified Intermediary.
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Exeter 1031 Exchange Services, LLC is a leading national provider of Qualified Intermediary, Exchange Accommodation Titleholding, and Advisory services for individual, corporate and institutional 1031 exchange clients.
Exeter administers all types of 1031 exchange transactions, including forward, reverse and improvement (build-to-suit or construction) 1031 exchange structures, in all 50 states. Exeter 1031 Exchange Services, LLC currently has national office locations in San Diego, Irvine, Ontario, Bakersfield, Fresno, and San Francisco, California and Kona, Hawaii, Tucson, Arizona, East Northport, New York, and Springfield, New Jersey.
You can contact Exeter at anytime, 24 hours a day, 7 days a week, 365 days a year. Call Exeter 24/7 provides round-the-clock access to our senior 1031 exchange advisors when you need them.
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