I felt City was taking advantage of the foreclosed houses crisis and gouging bills as banks don’t have the crews ir resources to investigate the water bills as they only find out right before closings after a title search.  

I noticed also that there are no calculations for CapEx, Repairs, PropMgt, Vacancy, ect, which would also increase your overall negative debt.In the words of Hip Hop artist Jay Z: "Men Lie, Women Lie...Numbers don't"

Any kind of corporation is creating a living entity with the IRS, so it takes the liability and pays taxes.  

The 1031 co won't care about these issues as they must comply with the IRS CODE which to my knowledge have no provisions for such issues. 

Whether an activity is an investment or a business is a factual determination beyond the scope of this discussion, but in most cases IRS will view wholesaling or flipping as a business, which would make all of the income from the activity taxable in the year it is earned.  

The IRS position is that whatever you take out of a 1031 is first profit.  

Signing that "we promise it is not a loan" document, and then turning around and telling the IRS that it was a loan, could potentially get someone in hot water.

Last year I had to carry a loss over, but still owed the IRS several thousand from my 1099 stuff. 

The IRS requires you to report any and all of your expenses.

If IRS asks for proof, I have the bank statements showing I paid the mortgage.