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Exchange News Spring 2007

	Realty Exchange Corporation
	"Your Nationwide Qualified Intermediary for Tax-Deferred Exchanges since 1990"

Misappropriation of Escrow Funds
	Recently there have been reports of misappropriation of exchange escrow funds by The 1031 Tax Group, LLC, of Richmond, VA, and Southwest 1031 Exchange of Las Vegas, NV. These two companies recently became the new owners of a number of established qualified intermediaries. Such reports raise questions as to the security and safety of escrow funds within the entire exchange industry.
	We have updated our web site, www.1031.us/SSEF, to provide a full explanation of the security procedures we follow to ensure the security and safety of the exchange escrow funds entrusted to us. It is apparent in the two current cases that the stable long-term ownership of a QI firm contributes in a positive manner to the security of the exchange escrow funds. Realty Exchange Corporation was established by Ed Horan in 1990. Ed served 30 years in the U.S. Air Force as a pilot and Comptroller, and serves as our Secretary/Treasurer. Our firm is one of the oldest family-owned QIs in the country.
In Memory
	Jerry Long, a long-time friend and colleague, passed away on March 6, 2007. Jerry was recently honored by the Federation of Exchange Accommodators with a well-earned lifetime achievement award. Jerry was the co-author of the text �Tax-Free Exchanges Under �1031�, which is considered the bible of the 1031 exchange industry. Jerry will be missed by all his friends in the exchange world to which he so freely gave of his time and advice.
IRS Approves Related Party Transfer Within Two Years
	The circumstances in Private Letter Ruling (PLR) 200712013 are that the related party wished to acquire the relinquished property from the taxpayer but did not plan to hold it for two years. The taxpayer had a contract on a more expensive replacement property that needed to go to settlement before the transfer of the relinquished property to the related party. The taxpayer entered into a reverse exchange agreement with an Exchange Accommodation Titleholder (EAT) in accordance with Revenue Procedure 2000-37. The EAT purchased the replacement property with funds loaned by the taxpayer. Subsequently, the taxpayer wrote a contract to transfer the relinquished property to the related party. The contract was assigned to the qualified intermediary (QI). At settlement the taxpayer transferred the relinquished property to the related party, who paid the purchase price to the QI. The EAT then transferred the replacement property interest to the taxpayer and the QI paid down the loan from the taxpayer to the EAT.
	Normally IRC Section 1031(f)(1) requires in a related party exchange that the relinquished property be held by the related party buyer for two years. However, in this PLR the IRS concluded that IRC Section 1031(f)(1) did not apply because the taxpayer and the related party did not engage in a like-kind exchange. The IRS stated that the related party�s disposal of the relinquished property within two years does not result in �cashing out� of an investment or shifting of basis between the taxpayer and the related party. It is not clear why the related party did not want to hold the property for two years. It could be they wanted to perform dealer activities, or avoid the 180- day limitations of Revenue Procedure 2000-37. Note that this PLR applies only to this taxpayer and may not be cited as a precedent.
Mississippi Law Now Conforms to Federal 1031 Exchange Rules
	On March 27, 2007, Mississippi law was changed so that its 1031 rules conform to IRC Section 1031. Prior to the change, the state only allowed deferral of the state capital gains tax if the replacement property was in Mississippi.
Presidentially Declared Disasters
	This year we have had a number of bad storms which resulted in a number of Presidentially Declared Disaster areas. When a county is declared a disaster area, the time sensitive due dates may be radically changed for any on-going 1031 exchanges affected.
	Current Presidentially Declared Disaster areas are:
	State/Counties Extension Period Date(s) of Disaster Disaster Designation New Mexico March 23 to June 1, 2007 March 23-24, 2007 Severe Storms-Tornadoes-NM Curry/Quay New Jersey-New York-New Hampshire-Maine   April 14 to June 25, 2007 April 14 � 18, 2007 April 16 Storm Bergen/Burlington/Camden/Essex/Gloucester/Hudson/Mercer/Middlesex/Morris/ Passaic/Somerset/Union in New Jersey Albany/Dutchess/Orange/Richmond/Rockland/Ulster/Westchester in New York Belknap/Grafton/Hillsborough/Merrimack/Rockingham/Stafford in New Hampshire Cumberland/Knox/Lincoln/Oxford/Sagadahoc/York in Maine Texas April 21 to Jul 2, 2007 April 21-24, 2007 Texas Storms/Tornadoes Denton/Maverick/Moore/Swisher Kansas May 4 to July 5, 2007 May 4, 2007 Kansas Storms/Tornadoes Barton/Edwards/Kiowa/Osborne/Phillips/Pratt/Stafford South Dakota May 4 to July 23, 2007 May 4, 2007 South Dakota Storms/Tornadoes Beadle/Brown/Clark/Davison/Hanson/Hutchinson/Miner/Sanborn/Spink/Yankton
	IRS computer systems now automatically identify taxpayers located in the covered disaster area. Affected taxpayers who reside, have a business or exchange property located outside the covered disaster area are required to call the IRS disaster hotline 1-866-562-5227 to self-identify for disaster relief. The taxpayer is granted relief to perform certain exchange time-sensitive acts if (1) the taxpayer is located in the disaster area, and (2) the relinquished property was transferred, or the EAT acquired title in a reverse exchange, before the start of the extension period. Other 1031 exchange qualifying conditions, including the relinquished or replacement property being located in the disaster area, are listed in Section 17 of IRS Revenue Procedure 2005-27 (I.R.B. 2005-20, 05/16/05). For exchanges that qualify, any reverse exchange, 45-day or 180-day deadlines falling after the start of the extension period are extended for 120 days. This may be a date after the end of the stated extension period.

Realty Exchange Corporation Call Bill Horan, CES� or Cindy Dove, CES� at 800-795-0769 Trust your exchange to a Certified Exchange Specialist� 14540 John Marshall Highway, Suite 207, Gainesville, VA 20155 office 703-754-9411 or 800-795-0769 fax 703-754-0754 Contact Bill Horan, CES� or Cindy Dove, CES� by Email www.1031.us Member of the Federation of Exchange Accommodators Bonded and Insured

This publication is designed to provide accurate information on tax-deferred exchanges. The publisher is not engaged in rendering legal or accounting services. If legal or tax advise is required the services of a competent professional should be sought.