ACCOUNTANTS, ATTORNEYS, AND FINANCIAL ADVISORS BEWARE

Dowdall selected Atlantic Exchange Company, LLC (AEC) to act as QI. During the course of the exchange, the taxpayer’s proceeds were stolen by AEC and Edward Okun, AEC’s sole member. The taxpayer’s loss was over $604,000. The taxpayer argued that his loss was caused by Dowdall’s legal malpractice, including:

• Failure to properly investigate AEC before selecting it as QI;
• Failure to confirm that AEC was sufficiently bonded before recommending AEC as the QI, and;
• Failure to confirm that the taxpayer’s exchange proceeds were deposited into an account on behalf of the taxpayer as required by the terms of the exchange agreement.

The Court determined that Dowdall did not adhere to their duty to perform sufficient due diligence in that they did not sufficiently investigate the QI prior to recommending the company to the taxpayer. Dowdall had represented that they were experts on the subject of 1031 tax-deferred exchanges.

Tax, legal, and financial advisors should realize the importance of performing sufficient due diligence before recommending a QI to facilitate a 1031 exchange on behalf of their clients.

Asset Preservation, Inc. (API), adheres to consistent and disciplined practices in handling exchanger funds, overseen by its parent company Stewart Title, a publicly-traded company (NYSE: STC).

For example, API’s parent company, Stewart, provides a “Letter of Assurance” guaranteeing the performance of API.