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Qualified Intermediaries

Qualified Intermediary is an Independent Third Party

A requirement to achieve a valid 1031exchange is that the Exchanger must avoid having actual or constructive receipt of the exchange funds. One way to accomplish this is to retain a Qualified Intermediary to satisfy the “safe harbor” requirements under Treasury Regulation 1.1031(k)-1(g)(4). The Qualified Intermediary must not be a “disqualified person” as defined in the 1031regulations. Examples of parties disqualified to serve as a Qualified Intermediary include parties related to the exchanger which are defined in sections 267(b) and 707(b)(1) of the Internal Revenue Code (e.g. ancestors, lineal descendants, siblings, spouses and related entities) as well as agents of the exchanger.

For purposes of the regulations, a person who has acted as the exchanger’s employee, attorney, accountant, investment banker or broker, or real estate agent or broker within the two year period prior to the beginning of the exchange is disqualified to serve as the Qualified Intermediary. There is an exception for the performance of routine financial, title insurance, escrow or trust services by a financial institution, title insurance company or escrow company or for services solely related to facilitating a 1031exchange. Accordingly, an exchanger can use the same Qualified Intermediary repeatedly.

When selecting a Qualified Intermediary, consideration should not only be given to the service and security they offer but also whether they are considered to be a “disqualified party, especially if the exchanger would like to have their exchange facilitated by their attorney or accountant.

Using a Qualified Intermediary to satisfy the exchange requirement is much easier to achieve since the Exchanger can sell the relinquished property to anybody (for cash) and buy their replacement property from almost anybody (for cash). It just has to be structured in accordance with 1031 regulations.

Evaluating a Qualified Intermediary

Security of the funds that are being held by the Qualified Intermediary (QI) for up to 180 days is essential to making sure they are available to acquire the replacement property and complete the exchange. When selecting QI, it is very important to consider a number of factors including: how the exchange funds are being held (are they in segregated accounts or are they comingled); the knowledge and experience of the QI as well as the soundness of its business practices; whether it complies with the statute and IRS regulations (to be within the “safe harbor” given by the IRS); and whether its employees are knowledgeable and competent (to assist you and your client).

With regard to security, the Exchanger should consider the following factors:

• Whether it has a significant Fidelity Bond (crime insurance).

• Whether it has a significant amount of Errors & Omission Insurance; and

• How the exchange funds will be held and/or invested.

With regard to financial strength and the possession of sound business practices, the Exchanger should determine:

• If the QI undergoes 3rd party audits.

• Whether the QI requires dual signatures on disbursements of exchange funds; and

• Whether the QI has a procedure that requires a written authorization by the Exchanger before exchange funds can be disbursed.

Finally, it is important to know whether the Qualified Intermediary has attorneys, accountants and/or Certified Exchange Specialists (CES®) on its staff knowledgeable with the regulations and legal requirements for a 1031exchange.


*Rodeo 1031 is a qualified intermediary. Rodeo 1031 Exchange does not provide tax or legal advice, nor can we make any representations or warranties regarding the tax consequences of your exchange transaction. Property owners must consult their tax and/or legal advisors for this information. Our role is limited to serving as qualified intermediary to facilitate your exchange.