{"id":27277,"date":"2020-07-01T18:13:06","date_gmt":"2020-07-01T22:13:06","guid":{"rendered":"https:\/\/www.affiliated1031.com\/can-a-simple-mistake-invalidate-a-section-1031-exchange\/"},"modified":"2020-07-01T18:13:06","modified_gmt":"2020-07-01T22:13:06","slug":"can-a-simple-mistake-invalidate-a-section-1031-exchange","status":"publish","type":"post","link":"https:\/\/www.affiliated1031.com\/es\/can-a-simple-mistake-invalidate-a-section-1031-exchange\/","title":{"rendered":"CAN A SIMPLE MISTAKE INVALIDATE A SECTION 1031 EXCHANGE?"},"content":{"rendered":"<div  class=\"tatsu-h6ut0r8faa5fhya5 tatsu-section  tatsu-bg-overlay   tatsu-clearfix\" data-title=\"\"  data-headerscheme=\"background--dark\"><div class='tatsu-section-pad clearfix' data-padding='{\"d\":\"15px 0px 15px 0px\"}' data-padding-top='15px'><div class=\"tatsu-row-wrap  tatsu-wrap tatsu-row-one-col tatsu-row-has-one-cols tatsu-medium-gutter tatsu-reg-cols  tatsu-clearfix tatsu-h6ut0r8fbz5l8qxi\" ><div  class=\"tatsu-row \" ><div  class=\"tatsu-column  tatsu-bg-overlay tatsu-one-col tatsu-column-image-none tatsu-column-effect-none  tatsu-h6ut0r8fdb4mgyyd\"  data-parallax-speed=\"0\" style=\"\"><div class=\"tatsu-column-inner \" ><div class=\"tatsu-column-pad-wrap\"><div class=\"tatsu-column-pad\" ><div  class=\"tatsu-module tatsu-text-block-wrap tatsu-h6ut0r8ff0ygt4c  \"><div class=\"tatsu-text-inner tatsu-align-center  clearfix\" ><style>.tatsu-h6ut0r8ff0ygt4c.tatsu-text-block-wrap .tatsu-text-inner{width: 100%;text-align: left;}.tatsu-h6ut0r8ff0ygt4c.tatsu-text-block-wrap{margin: 25px 0px 30px 0px;}<\/style><h2><em>What happens to the 1031 Exchange validity when a transactional mistake causes a violation of IRS 1031 Exchange rules?<\/em><\/h2><p>As a Qualified Intermediary, I am always concerned that an accidental mistake could invalidate an otherwise valid 1031 exchange.<\/p><p>For example:\u00a0<strong> What happens if the settlement agent sends the proceeds from the Relinquished Property transaction directly to the taxpayer\/exchanger?\u00a0<\/strong><\/p><p>This, of course, would be contrary to the instructions from the Qualified Intermediary(QI) which would have specifically instructed that the funds be sent to their Qualified Escrow Bank Account?<\/p><p>Or, <strong>what happens if the party that prepared the transfer documentation, delineates Affiliated 1031, LLC (QI) as the Grantee (recipient) of the Replacement Property on the warranty deed?<\/strong><\/p><p>I think you would agree that these are <u>two<\/u> serious mistakes, yet our office has experienced both of these types of gaffes.<\/p><p>Thankfully, in Peter Morton v. United States, 98 Fed. Cl. 596 (Fed. Cl. 2011), the judge in the Court of Federal Claims, made a popular decision for those of us in the Section 1031 Qualified Intermediary business.\u00a0\u00a0 In effect, he stated, as part of his decision, that <strong>accidental mistakes that are quickly remedied do not void the Section 1031 exchange.<\/strong><\/p><p>What had transpired in that case was that the settlement agent mistakenly sent the funds from the closing directly to the taxpayer\/exchanger rather than to the Qualified Intermediary\u2019s Trust Account.<\/p><p>This, of course, was contrary to the Exchange Instructions that were part of the 1031 documentation, which had been executed by both the taxpayer\/exchanger and its purchaser.<\/p><p>The good news is that the funds were wired into the Qualified Intermediary\u2019s Trust Account the next business day.<\/p><p>More specifically, the Court said:\u00a0 <strong>\u201cPlaintiff should not be penalized for another\u2019s mistake when he took every step to validly effect a deferred like-kind exchange. Plaintiff complied with all the requirements of the qualified intermediary safe harbor over which he had control; he did not have control over the mistaken actions of a third party. Because he complied with the requirement in all other aspects, we conclude that he validly effected a deferred like-kind exchange.\u201d<\/strong><\/p><p>The important lesson learned:\u00a0 If there is an accidental mistake in the closing documentation or an accidental mistake at the closing, but the mistake is immediately corrected, the Section 1031 will probably be validated, presuming all of the other aspects of the Section 1031 have been complied with.<\/p><p><em>One final comment:\u00a0 It is ALWAYS advisable that the Taxpayer speaks with their Legal and Financial counsel whenever dealing with an involuntary conversion.\u00a0 Affiliated 1031 LLC looks forward to working with you on future Section 1031 transactions. <\/em><\/p><p>I personally look forward to working with you on your\u00a0next Section 1031 exchange.\u00a0<br \/><\/p><\/div><\/div><\/div><\/div><div class = \"tatsu-column-bg-image-wrap\"><div class = \"tatsu-column-bg-image tatsu-bg-lazyload\" data-src = \"\"><\/div><\/div><div class=\"tatsu-overlay tatsu-column-overlay tatsu-animate-none\" ><\/div><\/div><style>.tatsu-row > .tatsu-h6ut0r8fdb4mgyyd.tatsu-column{width: 100%;}.tatsu-h6ut0r8fdb4mgyyd.tatsu-column > .tatsu-column-inner > .tatsu-column-overlay{mix-blend-mode: normal;}.tatsu-h6ut0r8fdb4mgyyd > .tatsu-column-inner > .tatsu-top-divider{z-index: 9999;}.tatsu-h6ut0r8fdb4mgyyd > .tatsu-column-inner > .tatsu-bottom-divider{z-index: 9999;}.tatsu-h6ut0r8fdb4mgyyd > .tatsu-column-inner > .tatsu-left-divider{z-index: 9999;}.tatsu-h6ut0r8fdb4mgyyd > .tatsu-column-inner > .tatsu-right-divider{z-index: 9999;}<\/style><\/div><\/div><\/div><\/div><div class=\"tatsu-section-background-wrap\"><div class = \"tatsu-section-background tatsu-bg-lazyload\" data-src = \"\"><\/div><\/div><div class=\"tatsu-overlay tatsu-section-overlay\"><\/div><style>.tatsu-h6ut0r8faa5fhya5 .tatsu-section-pad{padding: 15px 0px 15px 0px;}.tatsu-h6ut0r8faa5fhya5 > .tatsu-bottom-divider{z-index: 9999;}.tatsu-h6ut0r8faa5fhya5 > .tatsu-top-divider{z-index: 9999;}.tatsu-h6ut0r8faa5fhya5 .tatsu-section-overlay{mix-blend-mode: normal;}<\/style><\/div><!-- \/wp:post-content -->","protected":false},"excerpt":{"rendered":"<p>What happens to the 1031 Exchange validity when a transactional mistake causes a violation of IRS 1031 Exchange rules?<\/p>\n<div><a href=\"https:\/\/www.affiliated1031.com\/es\/can-a-simple-mistake-invalidate-a-section-1031-exchange\/\" class=\"exp-read-more exp-read-more-underlined\">Read More<\/a><\/div>\n","protected":false},"author":1,"featured_media":26957,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_coblocks_attr":"","_coblocks_dimensions":"","_coblocks_responsive_height":"","_coblocks_accordion_ie_support":"","footnotes":""},"categories":[57],"tags":[58,59,62,60,61],"class_list":["post-27277","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-1031-exchange-basics-es","tag-1031-exchange-es","tag-liberty-1031-es","tag-qualified-intermediary-es","tag-section-1031-exchange-es","tag-tax-deferral-es"],"_links":{"self":[{"href":"https:\/\/www.affiliated1031.com\/es\/wp-json\/wp\/v2\/posts\/27277","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.affiliated1031.com\/es\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.affiliated1031.com\/es\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.affiliated1031.com\/es\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.affiliated1031.com\/es\/wp-json\/wp\/v2\/comments?post=27277"}],"version-history":[{"count":0,"href":"https:\/\/www.affiliated1031.com\/es\/wp-json\/wp\/v2\/posts\/27277\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.affiliated1031.com\/es\/wp-json\/wp\/v2\/media\/26957"}],"wp:attachment":[{"href":"https:\/\/www.affiliated1031.com\/es\/wp-json\/wp\/v2\/media?parent=27277"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.affiliated1031.com\/es\/wp-json\/wp\/v2\/categories?post=27277"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.affiliated1031.com\/es\/wp-json\/wp\/v2\/tags?post=27277"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}