Often times, a 1031 qualified intermediary (QI) will receive a panicked phone call from a taxpayer who closed the sale of their relinquished property, received the sale proceeds and then realized they could have deferred substantial taxes in a Section 1031 exchange. In many of these instances there may not be an opportunity to revive the exchange, however, in some cases, the taxpayer may be able to breathe new life into what was thought to be a lost cause.
Can you do a 1031 exchange after closing?
The use of rescission has long been recognized in law generally in connection with transactions not related to 1031 exchanges. However, the Internal Revenue Service (“IRS”) has allowed the use of rescission to correct a problem with an exchange transaction. “Rescission” is not defined in the Internal Revenue Code or the Treasury Regulations, which are the source of most rules used to advise taxpayers. Rather, rescission is a concept which some courts have allowed, and the IRS has blessed, specifically in Penn v. Robertson, 115 F2d 167, 40-2 U.S. Tax Cas. (CCH) P. 9707 (CCA 4th Cir. 1940).
As an example, consider an individual taxpayer closes the sale of a parcel of land in February 2020 for a sizable gain. The taxpayer receives the sale proceeds but later finds out they could have deferred substantial tax liability by doing a 1031 exchange. As long as the taxpayer makes the decision to rescind the transaction in the same tax-reporting period–in this example before 2020 year-end–the taxpayer can contact the buyer and they can agree to rescind the transaction. Of course, should the buyer not be willing to cooperate, or should there be a buyer’s lender who does not wish to participate, this process may not be feasible.
Seller and buyer agree to rescind. What happens next?
When a rescission is properly completed, the IRS treats the sale as if it never happened, as long as the taxpayer receives the property back from the buyer and the buyer receives the full purchase price back from the taxpayer on or before the end of the tax reporting period for the taxpayer. The parties may agree they were laboring under mutual mistake of fact or some other reason for the decision to rescind. Another important consideration is when the rescission of the transaction is complete, the parties should have no further obligations to each other to take any further action. If these criteria are met, pursuant to the authorities cited above, the parties are in the exact position they were prior to the sale. The taxpayer and the buyer can then undertake another sale and purchase transaction and close the transaction with the participation of a QI company, like Accruit, receiving the exchange proceeds so it can help process the taxpayer’s 1031 exchange. In order to ease the burden on the buyer during rescission, it may be helpful if the taxpayer agrees to pay for any buyer expenses incurred in accommodating the taxpayer.
Typically, the QI company is not in a position to provide legal advice regarding the rescission process or provide any rescission agreement. There are numerous attorneys and CPA’s nationwide who are knowledgeable in this area of the law and who can help advise the taxpayer.
Do you have an uncommon situation that you have questions about? https://www.accruit.com/contact-us”>Ask our experts.
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Revive a 1031 Exchange Opportunity Through Rescission
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Revive a 1031 Exchange Opportunity Through Rescission
Often times, a 1031 qualified intermediary (QI) will receive a panicked phone call from a taxpayer who closed the sale of their relinquished property, received the sale proceeds and then realized they could have deferred substantial taxes in a Section 1031 exchange. In many of these instances there may not be an opportunity to revive the exchange, however, in some cases, the taxpayer may be able to breathe new life into what was thought to be a lost cause.
Can you do a 1031 exchange after closing?
The use of rescission has long been recognized in law generally in connection with transactions not related to 1031 exchanges. However, the Internal Revenue Service (“IRS”) has allowed the use of rescission to correct a problem with an exchange transaction. “Rescission” is not defined in the Internal Revenue Code or the Treasury Regulations, which are the source of most rules used to advise taxpayers. Rather, rescission is a concept which some courts have allowed, and the IRS has blessed, specifically in Penn v. Robertson, 115 F2d 167, 40-2 U.S. Tax Cas. (CCH) P. 9707 (CCA 4th Cir. 1940).
As an example, consider an individual taxpayer closes the sale of a parcel of land in February 2020 for a sizable gain. The taxpayer receives the sale proceeds but later finds out they could have deferred substantial tax liability by doing a 1031 exchange. As long as the taxpayer makes the decision to rescind the transaction in the same tax-reporting period–in this example before 2020 year-end–the taxpayer can contact the buyer and they can agree to rescind the transaction. Of course, should the buyer not be willing to cooperate, or should there be a buyer’s lender who does not wish to participate, this process may not be feasible.
Seller and buyer agree to rescind. What happens next?
When a rescission is properly completed, the IRS treats the sale as if it never happened, as long as the taxpayer receives the property back from the buyer and the buyer receives the full purchase price back from the taxpayer on or before the end of the tax reporting period for the taxpayer. The parties may agree they were laboring under mutual mistake of fact or some other reason for the decision to rescind. Another important consideration is when the rescission of the transaction is complete, the parties should have no further obligations to each other to take any further action. If these criteria are met, pursuant to the authorities cited above, the parties are in the exact position they were prior to the sale. The taxpayer and the buyer can then undertake another sale and purchase transaction and close the transaction with the participation of a QI company, like Accruit, receiving the exchange proceeds so it can help process the taxpayer’s 1031 exchange. In order to ease the burden on the buyer during rescission, it may be helpful if the taxpayer agrees to pay for any buyer expenses incurred in accommodating the taxpayer.
Typically, the QI company is not in a position to provide legal advice regarding the rescission process or provide any rescission agreement. There are numerous attorneys and CPA’s nationwide who are knowledgeable in this area of the law and who can help advise the taxpayer.
Do you have an uncommon situation that you have questions about? https://www.accruit.com/contact-us”>Ask our experts.
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Revive a 1031 Exchange Opportunity Through Rescission
Often times, a 1031 qualified intermediary (QI) will receive a panicked phone call from a taxpayer who closed the sale of their relinquished property, received the sale proceeds and then realized they could have deferred substantial taxes in a Section 1031 exchange. In many of these instances there may not be an opportunity to revive the exchange, however, in some cases, the taxpayer may be able to breathe new life into what was thought to be a lost cause.
Can you do a 1031 exchange after closing?
The use of rescission has long been recognized in law generally in connection with transactions not related to 1031 exchanges. However, the Internal Revenue Service (“IRS”) has allowed the use of rescission to correct a problem with an exchange transaction. “Rescission” is not defined in the Internal Revenue Code or the Treasury Regulations, which are the source of most rules used to advise taxpayers. Rather, rescission is a concept which some courts have allowed, and the IRS has blessed, specifically in Penn v. Robertson, 115 F2d 167, 40-2 U.S. Tax Cas. (CCH) P. 9707 (CCA 4th Cir. 1940).
As an example, consider an individual taxpayer closes the sale of a parcel of land in February 2020 for a sizable gain. The taxpayer receives the sale proceeds but later finds out they could have deferred substantial tax liability by doing a 1031 exchange. As long as the taxpayer makes the decision to rescind the transaction in the same tax-reporting period–in this example before 2020 year-end–the taxpayer can contact the buyer and they can agree to rescind the transaction. Of course, should the buyer not be willing to cooperate, or should there be a buyer’s lender who does not wish to participate, this process may not be feasible.
Seller and buyer agree to rescind. What happens next?
When a rescission is properly completed, the IRS treats the sale as if it never happened, as long as the taxpayer receives the property back from the buyer and the buyer receives the full purchase price back from the taxpayer on or before the end of the tax reporting period for the taxpayer. The parties may agree they were laboring under mutual mistake of fact or some other reason for the decision to rescind. Another important consideration is when the rescission of the transaction is complete, the parties should have no further obligations to each other to take any further action. If these criteria are met, pursuant to the authorities cited above, the parties are in the exact position they were prior to the sale. The taxpayer and the buyer can then undertake another sale and purchase transaction and close the transaction with the participation of a QI company, like Accruit, receiving the exchange proceeds so it can help process the taxpayer’s 1031 exchange. In order to ease the burden on the buyer during rescission, it may be helpful if the taxpayer agrees to pay for any buyer expenses incurred in accommodating the taxpayer.
Typically, the QI company is not in a position to provide legal advice regarding the rescission process or provide any rescission agreement. There are numerous attorneys and CPA’s nationwide who are knowledgeable in this area of the law and who can help advise the taxpayer.
Do you have an uncommon situation that you have questions about? https://www.accruit.com/contact-us”>Ask our experts.
-
Revive a 1031 Exchange Opportunity Through Rescission
Often times, a 1031 qualified intermediary (QI) will receive a panicked phone call from a taxpayer who closed the sale of their relinquished property, received the sale proceeds and then realized they could have deferred substantial taxes in a Section 1031 exchange. In many of these instances there may not be an opportunity to revive the exchange, however, in some cases, the taxpayer may be able to breathe new life into what was thought to be a lost cause.
Can you do a 1031 exchange after closing?
The use of rescission has long been recognized in law generally in connection with transactions not related to 1031 exchanges. However, the Internal Revenue Service (“IRS”) has allowed the use of rescission to correct a problem with an exchange transaction. “Rescission” is not defined in the Internal Revenue Code or the Treasury Regulations, which are the source of most rules used to advise taxpayers. Rather, rescission is a concept which some courts have allowed, and the IRS has blessed, specifically in Penn v. Robertson, 115 F2d 167, 40-2 U.S. Tax Cas. (CCH) P. 9707 (CCA 4th Cir. 1940).
As an example, consider an individual taxpayer closes the sale of a parcel of land in February 2020 for a sizable gain. The taxpayer receives the sale proceeds but later finds out they could have deferred substantial tax liability by doing a 1031 exchange. As long as the taxpayer makes the decision to rescind the transaction in the same tax-reporting period–in this example before 2020 year-end–the taxpayer can contact the buyer and they can agree to rescind the transaction. Of course, should the buyer not be willing to cooperate, or should there be a buyer’s lender who does not wish to participate, this process may not be feasible.
Seller and buyer agree to rescind. What happens next?
When a rescission is properly completed, the IRS treats the sale as if it never happened, as long as the taxpayer receives the property back from the buyer and the buyer receives the full purchase price back from the taxpayer on or before the end of the tax reporting period for the taxpayer. The parties may agree they were laboring under mutual mistake of fact or some other reason for the decision to rescind. Another important consideration is when the rescission of the transaction is complete, the parties should have no further obligations to each other to take any further action. If these criteria are met, pursuant to the authorities cited above, the parties are in the exact position they were prior to the sale. The taxpayer and the buyer can then undertake another sale and purchase transaction and close the transaction with the participation of a QI company, like Accruit, receiving the exchange proceeds so it can help process the taxpayer’s 1031 exchange. In order to ease the burden on the buyer during rescission, it may be helpful if the taxpayer agrees to pay for any buyer expenses incurred in accommodating the taxpayer.
Typically, the QI company is not in a position to provide legal advice regarding the rescission process or provide any rescission agreement. There are numerous attorneys and CPA’s nationwide who are knowledgeable in this area of the law and who can help advise the taxpayer.
Do you have an uncommon situation that you have questions about? https://www.accruit.com/contact-us”>Ask our experts.
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JYCS 2020 Annual Event Gala
The event program anyway. Thanks to Accruit Senior Director Jordan Born for his work as Board Designate at JYCS. Accruit is a proud supporter of JYCS.
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JYCS 2020 Annual Event Gala
The event program anyway. Thanks to Accruit Senior Director Jordan Born for his work as Board Designate at JYCS. Accruit is a proud supporter of JYCS.
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JYCS 2020 Annual Event Gala
The event program anyway. Thanks to Accruit Senior Director Jordan Born for his work as Board Designate at JYCS. Accruit is a proud supporter of JYCS.
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Clarification Requested on IRS Notice 2020-23
A IRS Notice 2020-23 and whether Affected Taxpayers may use postponement provisions of Section 17 in Rev. Proc. 2018-58.
Section 17.02 provides in pertinent parts as follows:
(1) The last day of a 45-day identification period and the last day of a 180-day exchange period that fall on or after the date of a federally declared disaster are postponed by 120 days or to the last day of the general disaster extension period authorized by an IRS News Release or other guidance announcing tax relief for victims of the specific federally declared disaster, whichever is later. However, in no event may a postponement period extend beyond: (a) the due date (including extensions) of the taxpayer’s tax return for the year of the transfer (See §1.1031(k)-1(b)(2)(ii); or (b) one year (See section 7508A(a)).
The letter also requests that March 13, 2020 be deemed to be the beginning date of disaster relief for 1031 exchanges and that each day of the disaster period from March 13 to July 15 be treated as the date of the federally declared disaster.
Further, the FEA asked that if the end of the 45-day identification period or the end of the 180-day exchange period falls within the disaster period, that the deadlines to complete both of those actions be extended by 120 days or to July 15, 2020, whichever is later.
Lastly, we will need to wait and see whether we receive any opinion on if the extension provisions are mandatory or permissive. The language in IRS 2020-23 automatically extends the 45 & 180 day periods until July 15. We hope to obtain some clarity from the IRS about whether the taxpayer can elect to take the extension or conclude the exchange on such earlier date that the exchanger would have otherwise been able to.
We will continue to keep up-to-date on all new information or documentation received in response to the joint letter dated April 20. If you have questions about your exchange transactions, please contact your exhange manager or call us at 800-237-1031. -
Clarification Requested on IRS Notice 2020-23
A IRS Notice 2020-23 and whether Affected Taxpayers may use postponement provisions of Section 17 in Rev. Proc. 2018-58.
Section 17.02 provides in pertinent parts as follows:
(1) The last day of a 45-day identification period and the last day of a 180-day exchange period that fall on or after the date of a federally declared disaster are postponed by 120 days or to the last day of the general disaster extension period authorized by an IRS News Release or other guidance announcing tax relief for victims of the specific federally declared disaster, whichever is later. However, in no event may a postponement period extend beyond: (a) the due date (including extensions) of the taxpayer’s tax return for the year of the transfer (See §1.1031(k)-1(b)(2)(ii); or (b) one year (See section 7508A(a)).
The letter also requests that March 13, 2020 be deemed to be the beginning date of disaster relief for 1031 exchanges and that each day of the disaster period from March 13 to July 15 be treated as the date of the federally declared disaster.
Further, the FEA asked that if the end of the 45-day identification period or the end of the 180-day exchange period falls within the disaster period, that the deadlines to complete both of those actions be extended by 120 days or to July 15, 2020, whichever is later.
Lastly, we will need to wait and see whether we receive any opinion on if the extension provisions are mandatory or permissive. The language in IRS 2020-23 automatically extends the 45 & 180 day periods until July 15. We hope to obtain some clarity from the IRS about whether the taxpayer can elect to take the extension or conclude the exchange on such earlier date that the exchanger would have otherwise been able to.
We will continue to keep up-to-date on all new information or documentation received in response to the joint letter dated April 20. If you have questions about your exchange transactions, please contact your exhange manager or call us at 800-237-1031. -
Clarification Requested on IRS Notice 2020-23
A IRS Notice 2020-23 and whether Affected Taxpayers may use postponement provisions of Section 17 in Rev. Proc. 2018-58.
Section 17.02 provides in pertinent parts as follows:
(1) The last day of a 45-day identification period and the last day of a 180-day exchange period that fall on or after the date of a federally declared disaster are postponed by 120 days or to the last day of the general disaster extension period authorized by an IRS News Release or other guidance announcing tax relief for victims of the specific federally declared disaster, whichever is later. However, in no event may a postponement period extend beyond: (a) the due date (including extensions) of the taxpayer’s tax return for the year of the transfer (See §1.1031(k)-1(b)(2)(ii); or (b) one year (See section 7508A(a)).
The letter also requests that March 13, 2020 be deemed to be the beginning date of disaster relief for 1031 exchanges and that each day of the disaster period from March 13 to July 15 be treated as the date of the federally declared disaster.
Further, the FEA asked that if the end of the 45-day identification period or the end of the 180-day exchange period falls within the disaster period, that the deadlines to complete both of those actions be extended by 120 days or to July 15, 2020, whichever is later.
Lastly, we will need to wait and see whether we receive any opinion on if the extension provisions are mandatory or permissive. The language in IRS 2020-23 automatically extends the 45 & 180 day periods until July 15. We hope to obtain some clarity from the IRS about whether the taxpayer can elect to take the extension or conclude the exchange on such earlier date that the exchanger would have otherwise been able to.
We will continue to keep up-to-date on all new information or documentation received in response to the joint letter dated April 20. If you have questions about your exchange transactions, please contact your exhange manager or call us at 800-237-1031.