1031 Exchange

1031 Exchange:
Everyone
loves a tax deferred, like kind, or 1031 exchange because you can defer tax on swapping real estate
instead of selling the property and paying capital gains tax.  Well, the Treasury Inspector General
for Tax Administration has noticed all that love and issued Audit Report 2007-30-172
“Like-Kind Exchanges Require Oversight to Ensure Taxpayer Compliance” Dated
09/17/2007. The report notes that there is a growing number of taxpayers using
1031 exchanges, but that many don’t meet the requirements. No surprise there.
When real estate lawyers can boast that they can structure a like kind exchange
for $500 at the closing using a service company that prepares the paperwork,
you have to get a bit curious. 1031 is not exactly a cake walk of simplicity.
These deals should really be done under the guidance of tax attorneys and tax
accountants (thank you Uncle Sam!). When you use a 1031 exchange you must
report it to the IRS on Form 8824. In 2004, 338,500 Form 8824s were filed
deferring $73.6 billion. The Report noted particularly that there are those
promoting the inappropriate tax free exchange of vacation and second homes. It
acknowledges the complexity and lack of clarity and guidance concerning the
exchange of vacation homes. Other areas of concern include tracking the gain on
subsequent transactions, related party exchanges, incorrect property basis data
(which is essential to determine the taxable gain when you finally liquidate),
partial, step and bartering 1031s. The bottom line is simple. There are huge
dollars at stake and you should expect more audits of 1031 transactions, and
particular attention to some of the items stated.

Payroll Tax:
One member limited
liability companies (LLCs) that are disregarded for tax purposes (you file a
schedule C or E on your Form 1040), and qualified Subchapter S subsidiaries (Q-Subs)
are all to be treated as separate entities for employment tax purposes.
Previously, under Notice 99-6, 1999-1 CB 321 you may have filed payroll taxes
under your name and Social Security number. T.D. 9356; Reg. § 1.34-1; Reg. §
1.1361-4; Reg. § 301.7701-2