Article reprinted with permission from Strategic Property Exchanges -- the 1031 property exchange experts.
On May 18, the IRS clarified the rules governing lawyers and accountants who practice tax law before the IRS, with the Regulations taking effect on June 20, 2005.
These new rules state that any written advice on any transaction whose purpose is the reduction, elimination, avoidance or evasion of any tax ( including income tax, corporate tax, estate tax or gift taxes) must adhere to specific guidelines to protect the taxpayer from tax penalties as high as 40%. The opinion must be written by a tax practitioner “knowledgeable in all areas of tax law”. An opinion by an advisor without that background will not protect the taxpayer.
How does this affect Real Estate Owners and Business Owners engaged in Section 1031 Exchanges? A Section 1031 Exchange (Like Kind Exchange) is a strategy designed to avoid taxes. This means that Section 1031 exchanges are governed by these rules. Further, a Section 1031 exchange is exempt from the reportable transaction rules only if it is properly reported according to Rev. Proc. 2004-67.