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In addition, Land America had invested the customers’ funds in auction-rate securities which are very difficult to value and may be substantially impaired given the current credit climate (that’s also an investment strategy that got Land America in trouble – they ended up with worthless debt).
Also, the customers will have to fork over attorney fees for their representation in the matter.
He has recently been appointed to serve as chapter 11 trustee in cases involving a residential building and a large construction company.
But, that’s not the usual way a tax-deferred exchange occurs.
So, the outcome of the case may be tied to the particular facts of the case and may not apply to all bankrupt qualified intermediaries that use less onerous language in exchange agreements – language that more closely follows the safe harbors in the Treasury Regulations.
Also, in the Information Letters, IRS said it is considering some type of relief for taxpayers caught-up in the bankruptcy of a qualified intermediary.The Internal Revenue Code doesn’t stipulate what a qualified intermediary can or can’t do with customers’ funds – they are completely unregulated.But, the court pointed out that the customers could have easily created a trust or escrow account with Land America if they had wanted to.The qualified intermediary plays an important role because the seller cannot take possession of the sale proceeds.To do so blows the tax-deferred nature of the exchange.