Qualified Intermediaries

The Role of a Qualified Intermediary in a 1031 Exchange

The IRS requires that the investor does not take possession of the proceeds from the sale of the property during a 1031 exchange. A Qualified Intermediary (QI), also known as a “facilitator” or “exchange accomodator”, acts as a fiduciary over the proceeds from the sale of the property during the exchange period, and provides services to help keep the investor in compliance with IRS rules and laws.

Independent Party

A QI must be an independent party to the exchange transaction, meaning the QI cannot also serve as the investor’s tax advisor, attorney, real estate broker, securities broker, or be the investor’s relative. Violation of this rule could result in the exchange being disallowed by the IRS.

Trust Account

The sale proceeds will be deposited in an account administered by the QI. The investor cannot have access to these funds unless the exchange is completed, or in certain circumstances, the exchange failed. Although not required, many QIs have fidelity bond insurance covering the trust account and their services.

Compliance with IRS Laws

Whether the investor is involved in a delayed exchange, or a more complicated reverse exchange, there are many steps in the exchange process that cannot be overlooked or omitted. The Internal Revenue Code Section 1031 and the regulations contain many rules with applicable deadlines. A knowledgeable QI will explain the rules and steps that must be taken to comply.

Federation of Exchange Accomodators

In 1990 the IRS issued Section 1031 Safe Harbor Regulations that defined the rules of conducting business as a QI. Shortly after, QIs established an association called the Federation of Exchange Accomodators (FEA) to provide regulation over its members and further its involvement in legislative matters and industry education. FEA also estabished a Certified Exchange Specialist (CES) designation. CES designees must complete substantial requirements and demonstrate competence in the industry. All FEA members must comply with their code of ethics.

If you would like assistance in finding a qualified intermediary please email us at info@1031investmentservices.com or call 877-255-1031.

1031 Investment Services, LLC and DFPG Investments, Inc. do not provide Qualified Intermediary services, nor do they offer tax advice. 1031 Investment Services, LLC and DFPG Investments are not responsible for the action of any Qualified Intermediary to whom we may refer.