1031 Exchange Accomodators, Others Accused in $80 Million Theft
This civil lawsuit, filed by the Santa Barbara law firm of Hollister & Brace, claims the money was stolen in a scheme involving "1031" or "tax-free" exchanges of real estate. "1031" is a reference to a provision in the Federal tax law (Section 1031 of the Internal Revenue Code) that essentially says that, if you structure your transaction correctly, you can sell your investment real estate, take the proceeds and reinvest it in, what the tax law refers to as, property of a "like kind" without having to pay immediate capital gains taxes; the tax liability is deferred indefinitely. Part of structuring your transaction correctly involves the use of an independent third party intermediary to hold the sale proceeds from the sale of one property in trust until the reinvestment property is purchased.
Further, the lawsuit indicates that these investors had purchase contracts to buy property that the reinvestment proceeds were earmarked for. Because the money is now no longer available, the investors are liable for contractual damages to the sellers of the reinvestment property for defaulting on the purchase contracts.
Reportedly, the FBI is investigating the possibility of criminality. To read more, see Santa Barbara suit alleges ponzi scheme by breast implant pioneer. sneaky slick escrow agents gamma
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