I received a call today from a CPA who attended a CE class that I taught two years ago. He sounded a little frantic and asked if I could help him out. He and his client are being audited by the IRS. His question to me was how could they prove that his client executed a valid 1031 exchange back in 2005. My first question to him was "Did Asset Preservation do the exchange?" He reluctantly said no and said he felt a little guilty giving me a call and asking for my help because his client had a "friend" at a local title/escrow company so that is who he used. Those of you that have been in the business for a few years know where this conversation was headed. The title company that handled the transaction also handled the 1031 exchange and guess what, abruptly closed their doors in 2007.
We talked about a couple of things that may help, but I do not know how this is going to turn out. They have until Friday to prove they completed this exchange or they have to pay taxes on about $700,000 of gain.
Because the intermediary industry is not regulated even at the federal level, facilitating a 1031 exchange is more than paperwork and convenience. There is huge liability for all parties and the security and history of the intermediary is critical. Do you and yourself a favor and align yourself with a reputable intermediary.
Hopefully the CPA calls me back and lets me know that everything worked out fine. I will keep you posted.
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