EXAMINATION CONTENT OUTLINE AND SAMPLE QUESTIONS

The following is a detailed outline of the four major content areas of the examination, with an indication (in parentheses) of the approximate percentage of the examination devoted to each area:

I. EXCHANGE PROCEDURES (25%)

Consult with client

Circumstances in which an exchange is inadvisable
Tax and other benefits of an exchange
Confidentiality requirements of exchange information
Conversion of a sale into a deferred exchange
Distinction between tax advice and exchange information

Administer client funds

Timing effects of various "Collected Funds/Good Funds Laws"
Treatment and reporting of interest earnings
Responsibility for and preparation of Form 1099-INT
Internal accounting controls applied to client funds

Secure client funds

Acceptable investment vehicles for client funds
Fidelity bonding
Methods of securing client funds

Document transactions

Minimum documentation required by law
Purposes of exchange documentation
Basic conveyance documents and their effects

II. THIRD-PARTY RELATIONSHIPS (10%)

Communicate with and educate clients and other related parties

Suggested exchange language for transaction documentation
Common drafting issues in the Agreement of Transfer
Real estate professionals' duties and restrictions
Common exchange questions

Facilitate settlement with closing agents

Closing agents' compliance with exchange instructions
1099-S reporting issues
Common state reporting issues

III. LEGAL, COMPLIANCE AND TECHNICAL ISSUES (60%)

Assure compliance and legal soundness of transaction

Personal property exchange issues
Combination exchanges (part reverse, part forward)
Evolution of current law
Safe-harbor rules under IRC §1031
Qualifying and non-qualifying property and issues concerning conversion of use
Function and requirements of Form 8824
Timing requirements for exchanges
Identification requirements
Safe harbor reverse exchange (Revenue Procedure 2000-37)
Mixed-use property (personal-use and business or investment-use property) and personal residence issues (Section 121)
Related party issues
Installment sales (Section 453)
Improvement exchange issues
Dealer and developer status
Basic terminology and structure related to IRC §1031
Partnership and limited liability company issues
Disregarded entities
Corporation issues
Multi-asset exchanges (personal property and real property)
Recognizing involuntary conversions (Section 1033)
Common vesting issues
Multiple exchange property issues
State and federal tax terms and calculations to determine gain
Constructive receipt issues
Essential requirements for an exchange
Tenancy-in-common programs (Revenue Procedure 2002-22)
" Boot" issues
" Step" transactions

Monitor transaction for soundness and timeliness

State transfer tax issues
Common misconceptions regarding IRC §1031
Foreign Investment Real Property Tax Act (FIRPTA) issues (Section 1445)
Issues related to state income- and capital-gains taxes

IV. ETHICAL AND PROFESSIONAL PRACTICE STANDARDS (5%)

Comply with applicable laws, regulations and standards of practice

Role of and acts prohibited by a qualified intermediary
Definition of a "disqualified person"

Maintain and enhance knowledge and skills associated with exchange activities

CES™ continuing education requirements

Promote ethical behavior

Disclosure requirements relating to potential conflicts of interest
Ethical standards for CES™ Designees
Use and limitations of CES™ designation

Please note that the questions from each content area will be mixed throughout the examination. The questions will NOT be presented in content area order on the examination.

Sample Questions

1) According to United States Treasury Regulations, which of the following is a required element of a valid exchange agreement between a qualified intermediary and taxpayer?

A. Value and equity replacement requirements
B. Identification requirements
C. Restrictions to the taxpayer's right to exchange proceeds
D. A statement of nonagency relationship

2) A corporation decides to exchange a truck with a Standard Industrial classification Code ("SIC" code) of 7359. Under Internal Revenue Code §1031, the corporation must exchange it for any

A. type of truck within the asset class
B. type of truck regardless of the asset class
C. piece of heavy equipment
D. investment property

3) Assuming that it was received within the 45-day identification period and contained the proper identification elements, which of the following is a valid identification?

A. An e-mail correspondence from the taxpayer's realtor to the qualified intermediary
B. A handwritten letter prepared by the taxpayer and sent to his or her accountant
C. A typewritten letter prepared by the taxpayer's attorney and sent to the qualified intermediary
D. A handwritten letter signed by the taxpayer and sent to the seller of the replacement property

4) A taxpayer exchanges one relinquished property in November and a second relinquished property in February. The replacement property was identified in December and acquired in April. The exchange must be reported during the year in which the

A. first relinquished property is sold
B. second relinquished property is sold
C. replacement property was identified
D. replacement property was acquired

5) According to the Deferred Exchange Treasury Regulations, which of the following properties would qualify for tax deferral?

A. Rental property now used as the taxpayer's personal residence
B. Property acquired at a government auction 30 days ago that the taxpayer is remodeling and has listed for sale
C. A vacant lot located in a residential subdivision
D. An interest in a limited-liability corporation

6) Which of the following sections of the Internal Revenue Code focuses on the disposition of United States real estate property interest by nonresident alien individuals and foreign corporations?

A. Section 1031
B. Section 1033
C. Section 1245
D. Section 1445

7) A taxpayer exchanges a relinquished property with a net sales price of $198,500 after deducting allowable closing costs and an adjusted basis of $49,300. The taxpayer completes the exchange by reinvesting all the equity into a replacement property with a cost of $173,500, including allowable closing costs.
The recognized gain is

A. $24,300
B. $25,000
C. $34,200
D. $59,200

8) When transferring the relinquished property to the buyer, which of the following charges against the purchase price commonly found on a settlement statement would be considered boot?

A. Real estate commissions
B. An exchange fee to the qualified intermediary
C. Recording fees
D. Security deposits

9) Which of the following parties is qualified to act as the intermediary for a taxpayer?

A. An attorney who handled a sale and purchase transaction 18 months prior to the sale of the relinquished property
B. The executor of the estate of the taxpayer's mother's estate, of which the taxpayer is a beneficiary
C. An employee of a corporation in which the taxpayer owns 15% of the stock
D. A taxpayer's aunt

Answer Key:

1) C
2) A
3) D
4) A
5) C
6) D
7) B
8) D
9) D

Please note that the difficulty of these sample questions may not be representative of the overall difficulty of the examination.

References

The following is a list of references that may be helpful in reviewing for the examination. This list is intended for use as a study aid only. The FEA does not intend the list to imply endorsement of these specific references, nor are the examination questions necessarily taken from these sources.

Internal Revenue Code Section 1031
Revenue Procedures
Technical Advice Memoranda
Foreign Investment in Real Property Tax Act
FEA Code of Ethics
Treasury Regulation Section 1.1031
Revenue Rulings
Field Service Advice
Taxpayer Relief Act of 1997

Standard CES® Terminology