Tenants-in-Common Investments: An Accident Waiting to Happen

The most common form of tenancy-in-common interests involves ownership interests in real property, with
two or more persons possessing undivided interests in the property. Section
1031
of the Internal Revenue Code codified permissible transfers of the taxable basis in an interest
in property when exchanged for a like-kind property. If done properly, such a transfer can be utilized to
defer taxes.

In 2002 the Internal Revenue Service, in IRS Revenue Procedure ruling 2002-22, ruled that subject to
permitted qualifications, a tenancy-in-common ownership interest in property can in fact be classified as a
direct ownership interest and not a security, thereby qualifying certain tenancy-in-common interests (TIC’s)
as qualified for the transfer of a taxable basis, thereby permitting such treatment as a like-kind exchange
under §1031 of the Internal Revenue Code.

Notwithstanding the treatment according TIC’s by the Internal Revenue Service, they have nonetheless been
determined to be securities for purposes of the Securities Act of 1933 and the Securities Exchange Act from
1934, based primarily upon their status as an “investment contract,” thereby rendering disputes relating to
these transactions as arbitral before the FINRA Office of Dispute Resolution.

Tenancy-in-common investments include sale-leasebacks of property, master leases, and other common interests
in real property investments which have been sold to the investing public. Unfortunately, many brokerage
firms have sold these investments without proper due diligence, and many investors have been stuck with
speculative and illiquid investments which have lost their tax-free/tax-deferrable like-kind exchange status
for failure to adhere to specific provisions of the IRS Code and/or the federal securities laws.

Worse, individual investors in tenancy-in-common investments can be held personally liable for underlying
debt and other liability-type situations. Many tenancy-in-common investments packaged to small investors
have been over-leveraged with debt and excessive risk. Many brokerage firms have failed in their performance
of proper due diligence, which they owe to their retail customers before recommending TIC investments.

We offer a free, initial consultation to investors who feel they have been victimized with the sale of a
tenancy-in-common (TIC) investment.

The Law Offices of Timothy J. O’Connor practices securities law in the Tri-City Capital District of
Albany, Schenectady and Troy. We also represent victimized investors throughout the rest of New York
State, including Buffalo, Binghamton, Rochester, Syracuse, Watertown, Utica, Kingston, Poughkeepsie, New
York City/Manhattan, Long Island, and everywhere in between, as well as in the surrounding states of
Massachusetts, Vermont, New Hampshire, Connecticut, and New Jersey.

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