The FTB identified the following as being among the most common issues in their audits of 1031 exchanges:
- Failure to make a proper identification or comply with other technical requirements of Section 1031;
- That the relinquished and/or replacement property are not held for a qualifying purpose (held for investment or productive use in a trade or business). For example, the property is used for personal purposes or it is held primarily for sale;
- The taxpayer who sells the relinquished property is different from the taxpayer who acquires the replacement property; and
- The taxpayer receives non qualifying property in the exchange (boot), but fails to report it on their tax return.