Qualified Intermediary
In most circumstances, the use of a “Qualified Intermediary” is required to successfully complete an IRC Section 1031 tax deferred exchange. The entity that facilitates an exchange (sometimes referred to as an accommodator or facilitator) is referred to as a Qualified Intermediary in the Treasury Regulation §1031.1031(k)-1(g)(4)(iii) as follows: A Qualified Intermediary (“QI”) is a person who:1) Is not the taxpayer or a disqualified person;
2) Enters into a written agreement with the taxpayer (the “Exchange Agreement”) under which the QI:
• Acquires the relinquished property from the taxpayer;
• Transfers the relinquished property;
• Acquires the replacement property;
• Transfers the replacement property to the taxpayer.
3) The Exchange Agreement must expressly limit the taxpayer’s rights to receive, pledge, borrow, or otherwise obtain benefits of money or other property held by the QI. (See Treasury Regulations §1031.1031(k)-1(g)(4)(i).)
The use of an experienced QI can significantly reduce the complexity of an exchange by assuring the proper execution of required documentation. The QI industry is not regulated nationally. Consequently, the careful selection of the QI is essential to ensure the highest levels of expertise and security of funds.
Source: Asset Preservation Incorporated
