BILL REQ. #: S-0902.1
| State of Washington | 63rd Legislature | 2013 Regular Session |
READ FIRST TIME 01/31/13.
AN ACT Relating to exchange facilitator requirements; and amending RCW 19.310.010, 19.310.040, 19.310.080, 19.310.100, 19.310.110, and 19.310.120.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
Sec. 1 RCW 19.310.010 and 2009 c 70 s 2 are each amended to read
as follows:
The definitions in this section apply throughout this chapter
unless the context clearly requires otherwise.
(1) A person or entity "affiliated" with a specific person or
entity, means a person or entity who directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under
common control with, the person or entity specified.
(2) "Client" means the taxpayer with whom the exchange facilitator
enters into an agreement as described in subsection (((3))) (4)(a)(i)
of this section.
(3) "Covered dishonest acts" means any crime involving fraud,
embezzlement, misappropriation of funds, robbery, or other theft of
property.
(4)(a) "Exchange facilitator" means a person who:
(i)(A) Facilitates, for a fee, an exchange of like-kind property by
entering into an agreement with a taxpayer by which the exchange
facilitator acquires from the taxpayer the contractual rights to sell
the taxpayer's relinquished property located in this state and transfer
a replacement property to the taxpayer as a qualified intermediary, as
defined under treasury regulation section 1.1031(k)-1(g)(4); (B) enters
into an agreement with a taxpayer to take title to a property in this
state as an exchange accommodation titleholder, as defined in internal
revenue service revenue procedure 2000-37; or (C) enters into an
agreement with a taxpayer to act as a qualified trustee or qualified
escrow holder, as both terms are defined under treasury regulation
section 1.1031(k)-1(g)(3); or
(ii) Maintains an office in this state for the purpose of
soliciting business as an exchange facilitator.
(b) "Exchange facilitator" does not include:
(i) A taxpayer or a disqualified person, as defined under treasury
regulation section 1.1031(k)-1(k), seeking to qualify for the
nonrecognition provisions of section 1031 of the internal revenue code
of 1986, as amended;
(ii) A financial institution that is (A) acting as a depository for
exchange funds and is not facilitating an exchange or (B) acting solely
as a qualified escrow holder or qualified trustee, as both terms are
defined under treasury regulation section 1.1031(k)-1(g)(3), and is not
facilitating an exchange;
(iii) A title insurance company, underwritten title company, or
escrow company that is acting solely as a qualified escrow holder or
qualified trustee, as both terms are defined under treasury regulation
section 1.1031(k)-1(g)(3), and is not facilitating an exchange;
(iv) A person that advertises for and teaches seminars or classes,
or otherwise makes a presentation, to attorneys, accountants, real
estate professionals, tax professionals, or other professionals, when
the primary purpose is to teach the professionals about tax-deferred
exchanges or to train them to act as exchange facilitators;
(v) A qualified intermediary, as defined under treasury regulation
section 1.1031(k)-1(g)(4), who holds exchange funds from the
disposition of relinquished property located outside of this state; or
(vi) An affiliated entity that is used by the exchange facilitator
to facilitate exchanges or to take title to property in this state as
an exchange accommodation titleholder.
(c) For the purposes of this subsection, "fee" means compensation
of any nature, direct or indirect, monetary or in kind, that is
received by a person or related person, as defined in section 267(b) or
707(b) of the internal revenue code, for any services relating to or
incidental to the exchange of like-kind property.
(((4))) (5) "Financial institution" means a bank, credit union,
savings and loan association, savings bank, or trust company chartered
under the laws of ((this)) any state within the United States or of the
United States whose accounts are insured by the full faith and credit
of the United States, the federal deposit insurance corporation, the
national credit union share insurance fund, or other similar or
successor programs.
(((5))) (6) "Person" means an individual, corporation, partnership,
limited liability company, joint venture, association, joint stock
company, trust, or any other form of a legal entity, and includes the
agents and employees of that person.
(((6))) (7) "Prudent investor standard" means the standard for
investment as described under RCW 11.100.020.
Sec. 2 RCW 19.310.040 and 2012 c 34 s 2 are each amended to read
as follows:
(1) A person who engages in business as an exchange facilitator
must:
(a)(i) Maintain a fidelity bond or bonds in an amount of not less
than one million dollars executed by an insurer authorized to do
business in this state for the benefit of a client of the exchange
facilitator that suffers a direct financial loss as a result of the
exchange facilitator's covered dishonest acts. Such fidelity bond must
cover the acts of employees of an exchange facilitator and owners of a
nonpublicly traded exchange facilitator; or
(ii) Deposit all exchange funds in a qualified escrow account or
qualified trust, as both terms are defined under treasury regulation
section 1.1031(k)-1(g)(3), with a financial institution((. The
qualified escrow account or qualified trust must));
(b) Provide that a withdrawal ((from that escrow account or trust))
of exchange funds requires the exchange facilitator and the client to
independently authenticate a record, as defined under RCW 62A.9A-102,
of the transaction;
(((b))) (c) Provide for the client of the exchange facilitator to
receive independently from the depository financial institution, by any
commercially reasonable means, a current statement for verification of
the deposited exchange funds; and
(d) Disclose on the company web site and contractual agreement the
following statement in large, bold, or otherwise conspicuous typeface
calculated to draw the eye: "Washington state law, RCW 19.310.040,
requires an exchange facilitator to either maintain a fidelity bond in
an amount of not less than one million dollars that protects clients
against losses caused by criminal acts of the exchange facilitator, or
to hold all client funds in a qualified escrow account or qualified
trust that requires your consent for withdrawals. All exchange funds
must be deposited in a separately identified account using your
taxpayer identification number. You must receive written notification
of how your exchange funds have been deposited. Your exchange
facilitator is required to provide you with written directions of how
to independently verify the deposit of the exchange funds. Exchange
facilitation services are not regulated by any agency of the state of
Washington or of the United States government. It is your
responsibility to determine that your exchange funds will be held in a
safe manner." If recommending other products or services, the exchange
facilitator must disclose to the client that the exchange facilitator
may receive a financial benefit, such as a commission or referral fee,
as a result of such recommendation. The exchange facilitator must not
recommend or suggest to a client the use of services of another
organization or business entity in which the exchange facilitator has
a direct or indirect interest without full disclosure of such interest
at the time of recommendation or suggestion.
(2) An exchange facilitator must provide evidence to each client
that the requirements of this section are satisfied before entering
into an exchange agreement.
(3) Upon request of a current or prospective client, or the
attorney general under chapter 19.86 RCW, the exchange facilitator must
offer evidence proving that the requirements of this section are
satisfied at the time of the request.
Sec. 3 RCW 19.310.080 and 2009 c 70 s 9 are each amended to read
as follows:
(1) A person who engages in business as an exchange facilitator
shall act as a custodian for all exchange funds, including money,
property, other consideration, or instruments received by the exchange
facilitator from, or on behalf of, the client, except funds received as
the exchange facilitator's compensation. The exchange facilitator
shall hold the exchange funds in a manner that provides liquidity and
preserves both principal and any earned interest, and if invested,
shall invest those exchange funds in investments that meet a prudent
investor standard and satisfy investment goals of liquidity and
preservation of principal and any earned interest. For purposes of
this section, a violation of the prudent investor standard includes,
but is not limited to, a transaction in which:
(a) Exchange funds are knowingly commingled by the exchange
facilitator with the operating accounts of the exchange facilitator,
except that the exchange facilitator's fee may be deposited as part of
the exchange transaction into the same account as that containing
exchange funds, in which event the exchange facilitator must promptly
withdraw the fee;
(b) Exchange funds are loaned or otherwise transferred to any
person or entity, other than a financial institution, that is
affiliated with or related to the exchange facilitator, except that
this subsection (1)(b) does not apply to the transfer of funds from an
exchange facilitator to an exchange accommodation titleholder in
accordance with an exchange contract;
(c) Exchange funds are invested in a manner that does not provide
sufficient liquidity to meet the exchange facilitator's contractual
obligations to its clients, unless insufficient liquidity occurs as the
result of: (i) Events beyond the prediction or control of the exchange
facilitator including, but not limited to, failure of a financial
institution; or (ii) an investment specifically requested by the
client; or
(d) Exchange funds are invested in a manner that does not preserve
the principal of the exchange funds, unless loss of principal occurs as
the result of: (i) Events beyond the prediction or control of the
exchange facilitator; or (ii) an investment specifically requested by
the client.
(2) Exchange funds are not subject to execution or attachment on
any claim against the exchange facilitator.
Sec. 4 RCW 19.310.100 and 2009 c 70 s 11 are each amended to read
as follows:
A person who engages in business as an exchange facilitator shall
not, with respect to a like-kind exchange transaction((, knowingly or
with criminal negligence)):
(1) Make a false, deceptive, or misleading material representation,
directly or indirectly, concerning a like-kind transaction;
(2) Make a false, deceptive, or misleading material representation,
directly or indirectly, in advertising or by any other means,
concerning a like-kind transaction;
(3) Engage in any unfair or deceptive practice toward any person;
(4) Obtain property by fraud or misrepresentation;
(5) Fail to account for any moneys or property belonging to others
that may be in the possession or under the control of the exchange
facilitator;
(6) Commingle funds held for a client in any account that holds the
exchange facilitator's own funds, except as provided in RCW
19.310.080(1)(a);
(7) Loan or otherwise transfer exchange funds to any person or
entity, other than a financial institution, that is affiliated with or
related to the exchange facilitator, except for the transfer of funds
from an exchange facilitator to an exchange accommodation title holder
in accordance with an exchange contract;
(8) Keep, or cause to be kept, any money in any bank, credit union,
or other financial institution under a name designating the money as
belonging to the client of any exchange facilitator, unless that money
belongs to that client and was entrusted to the exchange facilitator by
that client;
(9) Fail to fulfill its contractual duties to the client to deliver
property or funds to the taxpayer in a material way unless such a
failure is due to circumstances ((beyond the control of the exchange
facilitator)) as provided for under RCW 19.310.080(1) (c) and (d);
(10) Commit, including commission by its owners, officers,
directors, employees, agents, or independent contractors, any crime
involving fraud, misrepresentation, deceit, embezzlement,
misappropriation of funds, robbery, or other theft of property;
(11) Fail to make disclosures required by any applicable state law;
or
(12) Make any false statement or omission of material fact in
connection with any reports filed by an exchange facilitator or in
connection with any investigation conducted by the department of
financial institutions.
Sec. 5 RCW 19.310.110 and 2009 c 70 s 12 are each amended to read
as follows:
(1) An exchange facilitator must deposit all client funds in((:)) a separately identified account, as defined in treasury
regulation section 1.468B-6(c)(ii), for the particular client or
client's matter, and the client must receive all the earnings credited
to the separately identified account((
(a) For accounts with a value of five hundred thousand dollars or
more,; or)).
(b) For accounts with a value less than five hundred thousand
dollars, (i) a pooled interest-bearing trust account if the client
agrees to pooling in writing; or (ii) if the client does not agree to
pooling, in a separately identified account, as defined in treasury
regulation section 1.468B-6(c)(ii)
(2) An exchange facilitator must provide the client with written
notification of how the exchange proceeds have been invested or
deposited.
Sec. 6 RCW 19.310.120 and 2012 c 34 s 4 are each amended to read
as follows:
(1) Failure to fulfill the requirements under RCW 19.310.040
constitutes prima facie evidence that the exchange facilitator intended
to defraud a client who suffered a subsequent loss of the asset
entrusted to the exchange facilitator.
(2) A person who engages in business as an exchange facilitator and
who knowingly violates RCW 19.310.100 (1) through (8) or fails to
comply with the requirements under RCW 19.310.040 is guilty of a class
B felony under chapter 9A.20 RCW. However, an exchange facilitator is
not guilty of a class B felony for failure to comply with the
requirements under RCW 19.310.040 if: (a) Failure to comply is due to
the cancellation or amendment of the fidelity bond by the bond issuer;
and (b) the exchange facilitator:
(i) Within thirty days, takes all reasonable steps to comply with
the requirements under RCW 19.310.040; and
(ii) Deposits any new exchange funds into a qualified escrow
account or qualified trust until a fidelity bond is obtained that meets
the requirements under RCW 19.310.040(1)(a)(i).