Structuring 1031 Like-Kind Exchanges After IRS Victory in North Central Leasing

Preserving Tax-Deferral Treatment for Transactions Involving Related Parties and Qualified Intermediaries

Recording of a 90-minute premium CLE/CPE webinar with Q&A

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Conducted on Tuesday, May 19, 2015

Recorded event now available

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Course Materials

This CLE/CPE course will provide tax counsel, advisors and real estate counsel with 2015 developments concerning IRC Section 1031, examine the requirements for like-kind property exchanges to receive tax deferrals, and provide best practices in structuring transactions to avoid adverse tax consequences down the road.

Description

Developments in 2015 concerning Section 1031 like-kind exchanges and its tax deferral benefits demonstrate that counsel and tax advisors must be fully up to speed on the requirements of a 1031 transaction.

The Administration’s 2015 budget release proposes to limit real estate like-kind exchanges to a $1 million annual deferral cap. This may lead to a surge in like-kind exchanges, as business owners move to realign their business asset holdings before changes take effect. Additionally, the use of entities such as Delaware Statutory Trusts presents compliance issues that counsel and tax advisors must prepare to navigate.

Failure to observe the 1031 rules will lead to a like-kind exchange becoming a taxable event, as the defendant learned in the Eighth Circuit’s Mar. 2, 2015, holding in North Central Leasing L.L.C. v. United States. The court upheld the district court’s ruling for the IRS, which denied 1031 deferral treatment to nearly 400 like-kind exchanges by the taxpayer between 2004 and 2007.

Counsel must correctly structure 1031 exchanges according to IRS requirements or face unraveling exchanges, amending tax returns, and an unexpected tax hit for clients. From defining the role of the qualified intermediary in complex structures such as forward or reverse exchanges, to navigating related-party rules, there are a number of pitfalls for the unprepared advisor.

Listen as our experienced panel reviews and offers their insights into recent 1031 developments. The panel will provide attendees with best practices to avoid unwanted tax consequences from a failed 1031 exchange.

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Outline

  1. Framework of 1031 exchanges
    1. Eligible assets
    2. Timing requirements and use of qualified intermediary
    3. “Boot,” debt, basis and gain calculations
  2. Structures
    1. Reverse exchanges
    2. Forward exchanges
    3. Entities, land trusts and DSSTs
    4. Section 1031(f) related-party rules after North Central Rental and Leasing

Benefits

The panel will review these and other key issues:

  • What types of exchanged properties are more likely to be considered sufficiently “like-kind” and receive tax deferral?
  • What is the role, and restrictions, of the qualified intermediary?
  • How to avoid the 1031(f) restrictions against related-party exchanges?
  • What are the requirements of Sec. 1031’s “holding period requirement”?

Faculty

Joseph C. Mandarino
Joseph C. Mandarino
Atty
Cohen Pollock Merlin & Small

Mr. Mandarino's practice focuses on corporate, tax and finance law. He is involved with a wide variety of...  |  Read More

Renato Matos
Renato Matos
Partner
Capell Barnett Matalon & Schoenfeld

Mr. Matos' practice concentrates on corporate, taxation and real estate law, including stock...  |  Read More

Ricky Novak
Ricky Novak
CEO
Strategic 1031 Exchange Advisors

Mr. Novak's firm provides real estate and tax consulting services for clients structuring complex real estate...  |  Read More

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