Volume 2, Issue 1, February 9, 2006

This issue sponsored by OMNI Brokerage Inc.

A LETTER FROM THE FEA PRESIDENT

Dear Fellow FEA Members:

When I originally penned this letter to you, it began:

By the time this publication reaches you, you will probably have heard some rumblings about the proposed and maybe (by then) final Section 468 B Regulations.

However, on Friday, February 3rd, the proposed regulations were issued by the IRS. The proposed Regulations can be read by clicking here. The proposed Regulations are bad for QIs. They require the taxpayer to pay tax on the earnings on the exchange funds. Our Legislative Committee met yesterday to formulate a strategy. Our Board will adopt a coordinated approach with our Coalition members to address this issue. As soon as we have developed our plan of attack (and it will be soon) we will communicate the plan to you for your help. Obviously, we are unhappy with this development, but the fight is not over.

What follows is a brief description of the challenges presented by the 468 B Regulations and the FEA’s response to those challenges. The 468 B Proposed Regulations as they relate to Qualified Escrows and Qualified Trusts require a new and different tax treatment of the earnings paid on exchanges. The Regulations would require that all earnings paid on the exchange funds be reported by the Exchanger as income whether some or all of such funds were retained by the QI under the exchange agreement. Even though the effect of this Regulation was highly undesirable, the effect was limited to just Qualified Escrows and Qualified Exchanges. However, the stakes got raised in 2003 by the publication of a letter to the IRS suggesting this treatment should be required of all Exchange Transactions. The letter suggested that either the exchange funds were the property of the Taxpayer or the exchange funds represented a loan to the QI. In either case, the letter argued, the Exchanger should pay tax on the entire amount of earnings whether received by the Exchanger or the QI.

Needless to say, the impact of this expanded earnings treatment to all exchanges would have a devastating effect. No Exchanger would let the QI retain earnings on money taxed to the Exchanger but not received by the Exchanger. The FEA and several Board Members sent counter argument letters in 2003. The IRS said they needed no further information and a decision on the 468 B Regs. would be shortly forthcoming. That was over two years ago.

More recently, several of our Board Members were hearing hints that the 468 B Regulations soon would be issued, and that the earnings treatment would be unfavorable to QIs. To meet this challenge, the FEA Board of Directors authorized me to organize a coalition to raise money and hire top accounting people to make counter arguments to the IRS. The firm of Ernst & Young was retained by the coalition to draft a technical response to the previous letter. A reprint of that letter is available here. The letter’s arguments are well-reasoned and persuasive. Hopefully, our most recent position will be accepted by the IRS and the 468 B Regulations will not be expanded to cover all exchanges. Many thanks to Board Members Radah Butler and Patrick Dowdall who worked a great deal with Ernst & Young in drafting the response. More thanks go to all of the National non-Bank QIs firms, our regional member Bayview Financial, and every independent QI firm represented on our Board. Each contributed substantial financial resources to this effort. As soon as we learn of developments we will inform our members. For now, the FEA and its Coalition Members have done everything appropriate to meet this challenge.

Dennis P. Helmick
President

INCREASE YOUR PROFESSIONAL KNOWLEDGE!
REGISTER FOR THE 2006 ROCKY MOUNTAIN REGIONAL MEETING
SATURDAY, MARCH 11, 2006
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Secure your spot now for the 2006 Rocky Mountain Regional Meeting, this year on Saturday, March 11, 2006. This meeting is scheduled to begin at 8:30 a.m. with a continental breakfast and conclude at 4:00 p.m., followed by a one hour cocktail reception to allow for additional networking with your colleagues. This cocktail reception is being sponsored by Matrix Capital Bank. A total of 6 CES credit hours will be awarded for this program.

The agenda will feature sessions on:

TIC’s101 - a real nuts and bolts discussion
Dealer & Inventory
Personal Property
Identification Issues
Federal and State FIRPTA issues
Ethics Roundtable

HOTEL INFORMATION:

In order to keep the cost of attendance as low as possible for owners to send a number of employees, FEA has elected to meet by the Denver Airport.

Embassy Suites Hotel Denver International Airport
7002 Yampa Street
Denver, CO 80249
303-574-3000 (Phone)
303.574.9118 (Fax)

Here is what you need to do to register for this meeting:
1. Completethe registration form and return it via fax to FEA at 215.564.2175.
2. Contact theEmbassy Suites Hotel Denver International Airport at 303-574-3000 and indicate you are a member of FEA to secure accommodations.

For more information about the hotel, or to secure driving directions, pleaseclick here.

SUBMIT 2006 ANNUAL DUES PAYMENT IMMEDIATELY!
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PLEASE REMEMBER, MEMBERSHIP DUES FOR 2005 WERE DUE: JANUARY 31, 2006. After that date, non-paying members were charged an additional $100. After March 1, 2006 a company which hasn’t paid dues will be dropped off the “Member/QI Locator”, lose access to the ‘members only’ section of the website, and be dropped from FEA’s E&O and Fidelity Bond Insurance Programs. There will be a $300 reinstatement charge. Please be sure to submit payment promptly.

FEA TO PUBLISH MEMBERSHIP DIRECTORY YOUR RESPONSE IS CRITICAL!
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FEA is working to publish a membership directory early in 2006 but we cannot do it without your help. Members have received update forms and we ask that you please return these to FEA as soon as possible! To date, 50% of our members have responded, but we need 100% participation before we can publish this document.

If you are interested in buying an ad for this directory, please review the options by clicking here.

APPLY NOW TO TAKE THE CES® EXAM!
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The first CES exam of 2006 will be held after the Mid Year Conference, Saturday May 13 in Philadelphia, PA. Save money by applying early! To learn more about the CES® program visit their website at www.1031ces.org.

Saturday, May 13, 2006 (Following the FEA Mid-Year Conference):
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Philadelphia Downtown Marriott
1201 Market Street
Philadelphia, PA 19103
7:30 am Registration

Early Bird Discount Deadline:	February 27, 2006
Application Deadline:	March 23, 2005

SPONSORSHIPS STILL AVAILABLE FOR REGIONAL MEETINGS!
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FEA appreciates the support it receives from sponsors and would like to give more members the opportunity to become sponsors. For 2006, FEA has created many more sponsorship activities which will provide members with excellent exposure, both nationally and regionally. To view a full list of these different opportunities, click here!

2006 MEETING DATES - MARK YOUR CALENDARS!
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Use this form to register for any of the Regional Meetings. Program details for the events will soon be available on the FEA website, under the “Calendar of Events” page.

GOOD CUSTOMER SERVICE
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Submitted by this Newsletter’s Sponsor, OMNI Brokerage, Inc.
By J. R. Broadbent, a Registered Representative & General Securities Principal of OMNI Brokerage, Inc.

Good Customer Service can be the best way to grow a business (by leading to repeat business and lots of referrals from happy clients!) and to increase job satisfaction (have fun!). This article provides six simple suggestions of good customer service.

To read the full article click here!

MEMBERS IN THE NEWS
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Security 1031 Services, Inc. and Atlantic Exchange Company, LLC Announce the Acquisition of LKE Solutions, LLC

Brewster, NY – December 16, 2005 – Security 1031 Services, Inc. (“SOS1031”) and Atlantic Exchange Company, LLC (“AEC”) announced the acquisition of LKE Solutions, LLC a Boston, MA based provider of fleet vehicle exchange services under Section 1031 of the Internal Revenue Code. Security 1031 Services based in New York and Atlantic Exchange Company of Boston, MA are national qualified intermediary firms that merged operations in September 2005. LKE Solutions will continue to operate under the trade name of Security 1031 Services Fleet Division (“SOS1031 Fleet”).

Hector Sosa, who has supervised the fleet exchange operations for Atlantic Exchange Company, has been promoted to Division Manager of SOS1031 Fleet and will remain headquartered in Boston.

WELCOME NEW MEMBERS IN 2006!

Regular:
EZ1031 Exchange Inc., Los Angeles, CA, www.ez1031exchange.com
1031 Advance, Inc., San Jose, CA, www.1031advance.com

Affiliate:
1031 & TIC Investments, Minneapolis, MN, www.1031ticinvest.com
TM 1031 Exchange, Santa Monica, CA, www.tm1031exchange.com
Lamont Financial Service, Novato, CA, www.lamont1031.com

HERE’S HOW YOU CAN SUBMIT NEWS TO THE EXCHANGE
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Do you have any exciting news about your company and/or employees or do you have suggestions for topics to be covered? Please use this form to provide FEA with that information and we would be happy to include that information in a future issue of The Exchange.

Interested is sponsoring an issue of The Exchange? Simply fill out this form and submit it to FEA headquarters.