Michelle Napoli is editor of Net Lease forum, from which this article is excerpted.

Las Vegas—The Internal Revenue Service's proposed 468B regulations--which would affect how interest earned on escrowed 1031 exchange funds is reported and taxed and has the potential to negatively impact small qualified intermediaries nationwide--galvanized membership in an impressive way, leaders of the Federation of Exchange Accommodators said at its annual conference here last week.

Between writing letters to lawmakers on Capitol Hill, attending meetings and hearings in Washington, DC, donating funds and testifying before Congress, the effort of the FEA and its members was extraordinary, said Joe Mikrut of the lobbying firm Capitol Tax Partners, who participated on a panel focused on the 468B issue. But the association's work is hardly done, he and his fellow panelists stressed, and the FEA continues to communicate with the IRS and Treasury Department to assess the potential impact of the regulation. "The IRS has not withdrawn this regulation, which is what we've been advocating all along and will continue to advocate," he said. "There is no assurance they will see the light," Mikrut continued, adding that he would have a better sense after the November election about who should be a focus of further lobbying efforts.

First American Exchange Co.'s Hugh E. Pollard, who just started his term as FEA president, asked members to be responsive when surveyed by the FEA about their business, and Tim Egan, senior advisor on strategic policy planning and legislative affairs, later urged the audience to help with the FEA's political action committee.

An audience member asked the 468B panel if the National Association of Realtors supports the FEA in its opposition to the regulations. FEA southeast region VP Ronald L. Raitz of Real Estate Exchange Services Inc. characterized the NAR's level of support as mild. "Whether the organization will use its muscle to help us remains to be seen," he said. The lobbyist noted that the FEA continues to communicate with NAR and other groups that would be affected by the regulations in effort to attract their support.

If the regulations are adopted, the FEA would likely seek a legislative remedy, added outgoing FEA president Dennis P. Helmick of Exchange Facilitator Corp. The three-day FEA conference at Bally's Las Vegas included panels, association updates, educational sessions, networking opportunities and an economic overview by the Institute for Trend Research's Brian Beaulieu, who said that any current downturn in real estate prices is cyclical and not catastrophic. He advised conference attendees to hoard cash in 2008 so they can buy assets in 2009.

While 468B took center stage as a panel focus, other potential regulatory scrutiny or threats were also discussed. Raitz told the audience, "I think it's important for people to understand things have fundamentally changed. There are other things that are going to have to be addressed."

During a session on Exchange Issues at the State Level, Egan noted that "even though we're not seeing much activity, we are getting more questions about how the industry operates and functions." That, he continued, is not so much because of the 1031 exchange itself, but because of other groups. In California, for instance, he said, the state has asked for dialog with the TIC industry and is asking questions about possible regulations. That leads regulatory parties to consider more generally the 1031 exchange itself, he concluded.

States are scrambling to find revenue these days, noted FEA board member Max Hansen of American Equity Exchange Inc. FEA is keeping its collective eyes open for any issues at the state level that would affect the QI industry or would have a chilling effect on property investments and 1031 exchanges. The association does not want to see imposition of any anti-consumer protection regulations.

The FEA conference was continuing at press time. The next edition of NET LEASE forum will include more highlights from the final day of the conference, as well as coverage from the Tenant-in-Common Association conference in Las Vegas, which was scheduled to follow the FEA conference.

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468B, State Regulators Key FEA Topics

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