Failed Starker

[Vic Ferrari]

Here is the deal.

12/3/04 a person sold rentals for about one million with a hefty built in profit and had planned to like kind exchange them. The like kind fell through in January of 2005 and she got her money from the title company in April of 2005. The 1099S was issued for 2004.

We had planned to pay in 2005 since that is when she got the money but the 1099 was in the 2004 year. What should we do?

Thanks.

[ED SMITH]

Failed 1031

It seems to me that I recall a caveat about 1031 exchanges taking place near the end of the year. It probably came from a course on dispositions. The warning was not to initiate the sale in the last two months just to prevent what happened here.
The 1099 was issued for 2004 because that is when the sale took place and the money could have been received then by cancelling the exchange. Why it took until April is a mystery.

When the 1099S was received was the time to take care of it. Now, an amended return is certain to generate penalties and interest.

ED

[S T]

1031 Failure

Hi Vic, Good to see you on the board.

Taxpayer needed to identify property within 45 days of close of property sold (original), then has 180 days to complete sale (replacement).

It seems possibly that you can rely on the receipt of the money rather than when the escrow close date was under Section 453. See this link to see if this will help you http://www.diversifiedexchange.com/a...tober_2003.asp

I am not sure what State you are in, but our Calif instructions state to use the date of "failed" transaction (when funds are released) not the actual date of close of original escrow.

Hope this helps.

Sandy

[Snaggletooth]

Issue-as-you-go

Vic, I think your client got ahold of one of the "Issue-as-you-go" mortgage companies. As an integral part of that huge mound of paperwork associated with real estate closings is a 1099-S. i.e. they DON'T wait until the end of the year - guess it's too much trouble.

When they issued the 1099S in April, all they had available was the 2004 form. (They probably used it virtually all year long).

Yes, IRS is going to want this thing filed for 2004. There is a field for a date on the 1099S. As long as that date is correct, I believe you can prevail, but it will take some dreaded communication with the IRS. Go ahead and file the form properly in 2005, and hold your breath.

Actually, you might think the IRS would enforce the mortgage company to "clean up their act" but all they will do is look at you for money. If the date of closing on the 1099S is correct, you should be in good shape -- but not after IRS hassles you.

Vic, haven't seen you on this board before - welcome.

Regards, Ron Jordan

[S T]

More 1031

I can't find it on the 1099 S instructions, but follow this scenario.

I am currently involved in a 1031 exchange transaction in Arizona .

Arizona is the sale property subject to 1031 (in the escrow instructions). Arizona closed escrow and the funds were sent to an Exchange Accomodater FBO: Client.

A Form 1099S was issued by Arizona Title Company that showed the date of closing (actual close date of escrow) and sale price a BIG -0-.

Based on this, if the transaction fails, one might think then that the Exchange Accomodater (because they have the funds and had taken title to the sale property and would take title to the replacement property through this transaction, temporarily) would issue the 1099S for the failed transaction whenever the failure occured and funds were released.

So you might have to contact the escrow/title company that handled the sales transaction and also the Accomodater that handled the exchange portion of the transaction to have a corrected 1099s issued.

Keep us posted,

Sandy

[jainen]

Just guessing

Hi Vic, excellent post! Tell your client to expect a challenge, with results depending on a pretty technical argument. Since you don't dispute the amount or taxability of the gain, maybe a busy auditor will go with constructive receipt. The exchange documents should be helpful in establishing that there was no sale during the life of the contract. Just guessing further, you might find some case law on transaction date vs. settlement date relating to securities (wash sales and selling short and definition of long-term).