California Tightens The 1031 Noose
California has long conformed to the Federal rule permitting “like kind” exchanges under Section 1031 of the Internal Revenue Code. Nonresidents who dump their California property and replace it with out of state property, which might be later sold, have always been “on their honor” to pay the California tax upon the ultimate liquidation, though they may have had no other reason to file with Jerry Brown.
Recent Assembly Bill 92 has made some changes, however – imposing new annual filing requirements for folks in this situation. Starting next New Year’s Day, all taxpayers who defer gain under IRC Section 1031 by selling California property and replacing it with out of state realty will have to file a new California information return so that the state Revenooers can keep track of the deferred California sourced gain. And we hear this info return will have to be filed annually until the deferred California sourced gain is recognized.
And take note of a recent opinion piece in the Wall Street Journal by Romain Hatchuel, a wheel in a New York based asset management firm. Citing the International Monetary Fund (IMF) as the culprit, Hatchuel says IMF thinks that taxing the wealthy offers “significant revenue potential at relatively low efficiency costs.” And not in the traditional manner with which we and thee have become accustomed – IMF claims that a 10% levy on households’ positive net worth (a tax on your total net asset value, not to be confused with a tax on your income) would allow governments to bring down their debt load down to pre-financial crisis levels.
Quoth Mr. Hatchuel, “From New York to London, Paris and beyond, powerful economic players are deciding that with an ever-deteriorating global fiscal outlook, conventional levels and methods of taxation will no longer suffice. That makes weapons of mass wealth destruction – such as the IMF’s one-off capital levy, Cyprus’ bank deposit confiscation, or outright sovereign defaults – likelier by the day.”
Who would be surprised if Obama didn’t latch on to this one?
And from our government snooper department comes a recent IRS audit report wherein they acknowledge their auditors’ use of photos of a taxpayer’s property via Google Maps in connection with their conclusion to revoke the IRC Section 501(c)(4) status of a homeowners’ association!
Seems an audit issue, here, had to do with a road owned and maintained by the association. Quoth the IRS audit report, “The road consists of a two-mile loop around the inside of the property….The examining agent printed and copied a map from Google Maps into this report.”
Be on notice, you auditees out there, that the IRS manual itself notes that “The Internet (using Google or other similar search engine) can be an excellent source of background information relevant to the taxpayer…”
And you thought you were still entitled to a little privacy?
CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters. You should consult your CPA regarding the implications to your own particular situation.
Jeff Quinn is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd. with offices in Incline Village and Reno. He may be reached at 831-7288, welcomes comments at email@example.com, and invites readers to consider his other commentary at http://blog.nolo.com/taxes.