What are the rules?

• No Qualified Intermediary (QI) is required
  “You do not have to use the actual funds from the condemnation award to acquire the replacement property.” – IRS Publication 544
• No Official IRS Forms are required before Replacement
  Electing to utilize the 1033 exchange does not require any official notice to the IRS (FSA 200147053 IRS Field Service Advice September 2001). By simply omitting the gain from the return in the year that the gain occurred constitutes a “deemed” election. You may indicate with a notation on the return that the election is forthcoming. However, the return is deemed incomplete until the replacement property is acquired. Therefore, the normal 3-year statute of limitations for the IRS to audit the tax year will remain open until the replacement property is acquired and reported in the tax year it is replaced. When the condemned property is replaced, the IRS will require you to report it, typically by use of Form 8824.
• Follow the Timelines for the Replacement Period
  Visit the “Timeline” section of this website.
• The Name of the Person or Entity on the Condemned and Relinquished Property
  must Match the Name of the Person or Entity on the Replacement Property
• Make the Replacement Property an “arms-length” Transaction
  While we have heard about landowners who purchase their replacement property from related parties we have never participated in that type of exchange. We recommend that the replacement property be purchased from an unrelated party. We infer that to also be the preference of the IRS.Rather than reinventing the wheel, we apply the 1031 Related Party Rules to 1033, too.

  Section 1031(f) states that “For purposes of this subsection, the term “related person” means any person bearing a relationship to the taxpayer described in section 267 (b) or 707 (b)(1).” Those relationships in these code sections include:

• Members of the same family unit (siblings, spouse, ancestors, and lineal descendants);
• Corporation where more than 50% of the value of the stock is owned directly or indirectly by or for one particular individual;
• Two (2) corporations that are in the same controlled group (as defined in subsection (f);
• A grantor and a fiduciary of any trust;
• A fiduciary of one trust and the fiduciary and/or beneficiary of another trust where the same person is the grantor for both trusts;
• A fiduciary of a trust and a beneficiary of the same trust;
• Corporation where more than 50% of the value of the stock is owned directly or indirectly by or for one particular trust or by or for the grantor or fiduciary of the trust;
• An organization qualified under Section 501 of the Internal Revenue Code (IRC).
  The comprehensive set of tax laws created by the Internal Revenue Service (IRS). This code was enacted as Title 26 of the United States Code by Congress, and is sometimes also referred to as the Internal Revenue Title. The code is organized according to topic, and covers all relevant rules pertaining to income, gift, estate, sales, payroll and excise taxes.
• Certain educational or charitable non-profit organizations) which is controlled directly or indirectly by a specific person or (if such person is an individual) by members of the family of such individual;
• A corporation and a partnership if the same person or persons own: more than 50% in value of the outstanding stock of the corporation, and more than 50% of the capital interest, or the profits interest, in the partnership;
• An S corporation and another S corporation or a C corporation if the same person or persons own more than 50% in value of the outstanding stock of each corporation;
• A partnership and a person owning, directly or indirectly, more than a 50% capital interest or a 50% profits interest, in such partnership;
• Two partnerships in which the same person or persons own, directly or indirectly, more than a 50% capital interest or a 50% profits interest, in both partnerships;
• An executor of an estate and the beneficiaries of the estate.

There are rare opportunities for transactions that may involve relatives, although not defined as related parties. Trades with aunts, uncles, nieces, nephews, in-laws may fall into that category, but, as always, we recommend you obtain legal and tax advice from a trusted attorney or CPA.