1031 CORP. Newsletter: Escrow Officer Taints 1031

Recent tax case, Peter Morton v. US, No. 08-804C (Ct. Claims, April 27, 2011), reinforces the necessity to follow the requirements of IRC §1031 and how easily an exchange can be tainted - even by a mistake by an escrow officer.

Peter Morton is one of the co-founders of the Hard Rock Café chain and he has several wholly owned S corporations, including Red, White and Blue Pictures, Inc. (RWB). RWB owned an aircraft that was relinquished as part of a 1031 tax-deferred exchange but Mr. Morton personally is the plaintiff in the case because RWB was a pass through entity.

In 1999, Mr. Morton (presumably through RWB) structured an exchange of a Gulfstream G-III for a Gulfstream G-IV aircraft. RWB entered into an exchange agreement with a QI and an escrow agreement with an escrow agent. RWB met all the requirements of the QI safe harbor, but the escrow agent accidentally placed the funds into RWB's non-exchange bank account. RWB returned the funds the following day.

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Protecting your Exchange Funds

Our Top Priority

We all work hard for our money and we want to protect it. Protecting your exchange funds is also our top priority and we have implemented many procedures to safeguard your money.

Protecting your funds from a QI failure or misappropriation:

Segregated FDIC insured account for each exchange including your name and TIN.
Movement of exchange funds can only be initiated with your written authorization.
Ability to view real time account balances on-line any time on the depository's site.
Monthly account statements and written notices of all deposits and withdrawals directly from financial institution.
In addition to your authorization, two internal authorizations are required to move your funds.
Ability for you to establish a pin/password directly with the depository which will be needed from YOU as the final approval on any withdrawal from your account.
Funds protected through a Qualified Escrow Agreement when requested. A Qualified Trust Agreement is available at an additional cost.
Multi-million dollar fidelity bond and professional liability coverage.
Ability to choose an alternative depository (at an additional charge).

Protecting your funds from a bank failure:

FDIC insured account providing $250,000 coverage for each account owner.
A husband and wife can have $500,000 coverage with both names on the account.
Funds can be split between two or more depositories.
Funds can be deposited into a non-interest bearing 100% FDIC insured account.

1031 CORP. clients always earn interest on their exchange funds.

Lunch & Learn Webinars

Join us for one of our complimentary LUNCH & LEARN webinars designed to help you and/or your clients build and preserve wealth.

Advanced 1031 Topics

Wednesday, June 22^nd

12:05 - 12:50 pm EDT

This webinar will review topics such as reverse and improvement exchanges, personal property exchanges, related party transactions, installment sales and partnership issues. 1031 basics will not be covered so if you don't know the basics, you are encouraged to take our "1031 Exchanges Made Easy" webinar first. REGISTER NOW!

Message from our President

Margo McDonnell

Dear Friends,

A few years ago, the exchange industry saw many exchangers fail to complete their exchange. There were a number of reasons for these incomplete exchanges, some of which included difficulty obtaining financing and a disconnect between what buyers and sellers thought a property was worth. What we are seeing now is almost the opposite. Exchangers are lining up their replacement properties and scheduling their acquisition almost immediately after relinquishing their old property to the buyer - locking in their successful 1031 exchange.

Unfortunately this spring has been full of natural disasters. For those dealing with these issues, the last thing they need to deal with is completing their 1031 exchange. Fortunately, affected taxpayers are often eligible for extensions. If you or your client is affected by a Presidentially declared disaster, please contact your exchange officer to see if you are covered under a disaster extension.

Here's to a much calmer summer season!

Best Regards,