Key Takeaways
- Six audit focus areas: timelines, investment intent, like-kind qualification, QI qualification, boot accuracy, and related party compliance.
- Constructive receipt—the ability to access exchange funds—causes complete exchange failure, not just partial recognition.
- Documentation-based defense: Exchange Agreement, identification letter with date proof, closing statements, and QI summary.
- Exchanges with margin (identification before Day 45, rental history, independent QI) are most audit-resilient.
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Test Your Knowledge
1.What does the IRS look for when auditing a 1031 exchange?
2.What is "constructive receipt" and why does it disqualify a 1031 exchange?
3.What is the best defense strategy if the IRS challenges the investment intent of an exchanged property?