In the US, the practice is typically referred to as a Section 1031 like for like exchange.
Well I guess Rob's not going to answer. My question is not about your escrow service, but about your shifting characterization of the transaction structure as a 1031 exchange.
First, the potato farming thing is not analogous to a 1031 like-kind exchange. The potatoes all belong to the farmer, and the farmer is not exchanging his potatoes for someone else's potatoes.
Be that as it may, there are a number of steps and timelines to qualify as a 1031 exchange for the IRS. Saying "there's never been a challenge" is kind of silly, given the relatively low probability of the IRS catching all manner of shenanigans, given the decimation of their ability to enforce the law in the last few years. It's like a bank robber saying "we've never been challenged" in a large city with two cops.
https://www.nytimes.com/2018/10/01/business/economy/irs-tax-fraud-audit.html
Starting in 2011, Republicans in Congress repeatedly cut the I.R.S.’s budget, forcing the agency to reduce its enforcement staff by a third. But that drop doesn’t entirely explain the reduction in tax fraud cases.
...
“Due to budget cuts, attrition and a shift in focus, there’s been a collapse in the commitment to take on tax fraud,” said Chuck Pine, who used to be the third-ranking criminal enforcement officer at the I.R.S. and is now a managing director at BDO Consulting. “I believe there are thousands of individuals who have U.S. tax obligations and are not complying with U.S. tax laws.”
So, "there's never been a challenge" is a foolish argument.
But you have to make up your mind whether these are escrow transactions or 1031 like-kind exchanges.
The other stupid argument here is saying that "escrow only applies to real or personal property and domain names are not". Well, sure, you can say that if you want to, but if you are saying that domain names are not some form of "personal property", then domain transactions
NEVER qualified for 1031 like-kind treatment in the first place - and they certainly don't after the 2017 tax act.
Rob's not paying attention to the revised IRS rules on 1031 exchanges, and his vague reference to unidentified "precedent" is irrelevant to the
current IRS rules.
Anyone who thinks they are doing a 1031 exchange with domain names had better read what the IRS has to say, and not what Rob is peddling:
https://www.irs.gov/businesses/smal...oyed/like-kind-exchanges-real-estate-tax-tips
Under the Tax Cuts and Jobs Act, Section 1031 now applies only to exchanges of real property and not to exchanges of personal or intangible property. An exchange of real property held primarily for sale still does not qualify as a like-kind exchange. A transition rule in the new law provides that Section 1031 applies to a qualifying exchange of personal or intangible property if the taxpayer disposed of the exchanged property on or before December 31, 2017, or received replacement property on or before that date.
The ship on 1031 exchanges on domain names has sailed, and it sailed more than a year ago. Rob's understanding of 1031 exchanges is out of date and extremely bad advice. Not to put too fine a point on it, but if you rely on Rob's statement that domain name trades can qualify for 1031 exchange treatment by the IRS, you can end up
IN PRISON.
So, please, make up your mind. Either domain names are (or rather "were" until the code changed) "real property or personal property" subject to 1031 like-kind exchanges, or they are not. You can't say, for the purpose of 1031 exchanges that they are personal property, and for escrow transactions they are not personal property. But, again, it doesn't matter anyway, since domain names are certainly not real property, so
anything Rob has to say about domain names and 1031 exchanges is completely wrong and misguided, and has been since December 2017.
And, finally, even if Epik was providing Qualified Intermediary services for 1031 exchanges, the State of Washington has the following laws which apply to 1031 exchange facilitators:
https://app.leg.wa.gov/rcw/default.aspx?cite=19.310&full=true
19.310.040
Duties of exchange facilitator—Fidelity bonds.
(1) A person who engages in business as an exchange facilitator must:
(a)(i)
Maintain a fidelity bond or bonds in an amount of not less than one million dollars executed by an insurer authorized to do business in this state for the benefit of a client of the exchange facilitator that suffers a direct financial loss as a result of the exchange facilitator's covered dishonest act. Such fidelity bond must cover the acts of employees of an exchange facilitator and owners of a nonpublicly traded exchange facilitator; or
(ii)
Deposit all exchange funds in a qualified escrow account or qualified trust, as both terms are defined under treasury regulation section 1.1031(k)-1(g)(3), with a financial institution. If an exchange facilitator deposits exchange funds in a qualified escrow account or qualified trust:
(A) A withdrawal of exchange funds requires the exchange facilitator and the client to independently authenticate a record, as defined under RCW
62A.9A-102, of the transaction; and
(B)
The client of the exchange facilitator must receive independently from the depository financial institution, by any commercially reasonable means, a current statement for verification of the deposited exchange funds; and
(b)
Disclose on the company web site and contractual agreement the following statement in large, bold, or otherwise conspicuous typeface calculated to draw the eye: "Washington state law, RCW
19.310.040, requires an exchange facilitator to either maintain a fidelity bond in an amount of not less than one million dollars that protects clients against losses caused by criminal acts of the exchange facilitator, or to hold all client funds in a qualified escrow account or qualified trust that requires your consent for withdrawals. All exchange funds must be deposited in a separately identified account using your taxpayer identification number. You must receive written notification of how your exchange funds have been deposited. Your exchange facilitator is required to provide you with written directions of how to independently verify the deposit of the exchange funds. Exchange facilitation services are not regulated by any agency of the state of Washington or of the United States government. It is your responsibility to determine that your exchange funds will be held in a safe manner." If recommending other products or services, the exchange facilitator must disclose to the client that the exchange facilitator may receive a financial benefit, such as a commission or referral fee, as a result of such recommendation. The exchange facilitator must not recommend or suggest to a client the use of services of another organization or business entity in which the exchange facilitator has a direct or indirect interest without full disclosure of such interest at the time of recommendation or suggestion.
(2) An exchange facilitator must provide evidence to each client that the requirements of this section are satisfied before entering into an exchange agreement.
(3) Upon request of a current or prospective client, or the attorney general under chapter
19.86 RCW, the exchange facilitator must offer evidence proving that the requirements of this section are satisfied at the time of the request.
...
19.310.090
Administration of places of business—Direct management.
A person who engages in business as an exchange facilitator must administer each of his, her, or its places of business under the direct management of an officer or an employee who is either:
(1) An attorney or certified public accountant admitted to practice in any state or territory of the United States; or
(2) A person who has passed a test specific to the subject matter of exchange facilitation.
...
19.310.120
Prima facie evidence of fraud—Violations—Penalty—Cure for violations.
(1) Failure to fulfill the requirements under RCW 19.310.040 constitutes prima facie evidence that the exchange facilitator intended to defraud a client who suffered a subsequent loss of the asset entrusted to the exchange facilitator.
(2) A person who engages in business as an exchange facilitator and who knowingly violates RCW 19.310.100 (1) through (9) or fails to comply with the requirements under RCW 19.310.040 is guilty of a class B felony under chapter
9A.20 RCW. However, an exchange facilitator is not guilty of a class B felony for failure to comply with the requirements under RCW
19.310.040 if: (a) Failure to comply is due to the cancellation or amendment of the fidelity bond by the bond issuer; and (b) the exchange facilitator:
(i) Within thirty days, takes all reasonable steps to comply with the requirements under RCW
19.310.040; and
(ii) Deposits any new exchange funds into a qualified escrow account or qualified trust until a fidelity bond is obtained that meets the requirements under RCW
19.310.040(1)(a)(i).
-----------
Again, since domain names are not real property, and ONLY real property qualifies for 1031 like-kind exchange treatment, then it is somewhat academic to point out that if Epik is purporting to provide intermediary services for 1031 exchanges (and they certainly are performing the steps of selling the first property, holding the proceeds, and buying the second property), then if they had been doing so without complying with the requirements of Washington law, then Epik has been engaged in the commission of a felony under the relevant Washington law.
So, Rob, I have to ask you: Do you now or have you ever provided intermediary services for IRS 1031 exchanges in the State of Washington?
It's not a hard question, since you have made several references to transactions on the Epik platform qualifying as 1031 exchanges under the IRS code.
