Tthe IRS is taking a serious look at what is happening with 1031 tax exchanges. If you do an exchange your chance of an audit just went up. The IRS promises a new exchange auditing program soon. Minnesota will audit all 1031 exchanges starting this year.

What is this all about? Well, the IRS took a good look at six large exchange companies and discovered a whopping 875 million dollars in lost revenue due to sloppy paperwork and a lack of enforcement for incomplete or illegal tax exchanges. That is a lot of money for tax strapped states and feds to potentially get their hands on. That is probably the tip of the ice burg if you look at all the other small exchange companies!

Be prepared for all states to change their laws on how the exchangers or intermediaries are regulated. Laws are changing in many states requiring the exchangers to be "licensed, and bonded". Eventually, this will mean fewer exchange companies and much higher fees.