QUALIFIED INTERMEDIARY SERVICES

A qualified intermediary (QI) is an essential role in every 1031 exchange. In 1991, the IRC Section 1031 regulations were updated to require the use of an impartial third party to hold funds when conducting the sale and purchase of real estate through a 1031 exchange. Thus, the role of the QI was born.

The Role of the QI

Why does the QI role exist?

The key element in a successful exchange is that the taxpayer is not, at any time, in receipt of any portion of the funds from the sale of the relinquished property, otherwise, the exchange fails. Prior to 1984, the buyer of the relinquished property would hold on to the funds until the seller found a replacement property.  If for any reason, whether it was bankruptcy or judgments or simply buyer's remorse, the buyer did not have access to the funds at the time the seller needed them, it created a very large problem for the seller to be able to complete their exchange. As a result, a safe harbor for the taxpayer was created within the regulations, and the role of the qualified intermediary was born. Now, instead of transacting directly with one another directly, all parties buy and sell via the QI.

What does a QI do?

In the most technical sense, a QI is a person or entity acting to facilitate an exchange under section 1031 and the regulations. This person may not be the taxpayer or a disqualified person . Section 1.1031(k)-1(g)(4)(iii) requires that, for an intermediary to be "qualified", the intermediary must enter into a written exchange agreement with the taxpayer and, as required by the exchange agreement, acquire the relinquished property from the taxpayer, transfer the relinquished property, acquire the replacement property, and transfer the replacement property to the taxpayer. In plain English, the QI acts as the buyer of the relinquished property and seller of the replacement property with the exchanger, which is what creates the exchange part of the transaction. The QI also holds the funds from the sale of the relinquished property until it is time to purchase the replacement property, thereby meeting the requirement that the seller not have receipt of funds during the exchange period. At Accruit, we hold all funds in segregated accounts, so you can rest assured that your funds will not be comingled with anyone else's. Additional responsibilities of the QI include: 
  • Structuring the exchange
  • Preparing the related documentation
  • Safeguarding proceeds from the sale of the relinquished property(s)
  • Continuous monitoring and advising to ensure compliance with federal and state 1031 and QI requirements

Selecting a QI

When choosing a qualified intermediary to handle your 1031 exchange (also called a like-kind exchange), it is essential to exercise due diligence to ensure the proper and successful completion of your exchange. Factors key in choosing a qualified intermediary include the following.

Years of Experience

How long has the exchange company been actively engaged in the exchange industry?

Accruit and its subsidiaries have been actively involved in real estate, trust administration and 1031 exchange transactions since 1978. Accruit’s executive team and experienced client service representatives can cumulatively claim nearly two centuries in the 1031 exchange business.

Dedication to the 1031 Exchange Industry

Is the company actively engaged with like-kind exchange-related matters? Is it an active member of the Federation of Exchange Accommodators (FEA)? Are 1031 exchanges their primary business or an add-on service?

Accruit’s long-standing commitment to the Federation of Exchange Accommodators includes three past presidents, four past and present FEA board members and multiple FEA committee members.  Accruit has helped lead efforts in Washington, D.C. to preserve Section 1031 exchanges for taxpayers.

Certified Exchange Specialists® on Staff

How many employees of the company are Certified Exchange Specialists® (CES), a designation developed by the FEA and obtained only after years of experience, qualification and testing?

Accruit has five Certified Exchange Specialists® on staff and more in training.

Attorneys, CPAs and other Qualified Professionals on Staff

Does the company maintain in-house attorneys, certified public accountants and other professionals as key resources?

Accruit has five Certified Exchange Specialists, one CPA, four attorneys (one with an LLM in tax), dedicated in-house banking and finance staff and dedicated in-house IT staff.

Safety and Security of Exchange Funds

How does the company provide for the security of exchanger funds?

Accruit works with depositary banks uniquely situated to provide for the safety and security of exchanger funds. Accruit has the ability to provide dual signature accounts requiring exchanger approval before the movement of exchanger funds. It also has the ability to provide qualified trust and escrow accounts to further protect deposits.

Exchange Services

What types of exchange services are provided by your company?

Accruit facilitates all types of forward, reverse and improvement exchange transactions nationwide. 

Fidelity Bonding and E&O Insurance

Does the company maintain a fidelity bond and errors and omission coverage?

Accruit meets all best practices and state regulatory requirements for fidelity bonds and errors and omission coverage.

Regulatory Measures

It's important to note that there is currently no federal regulation of qualified intermediaries. However, with the help of the Federation of Exchange Accommodators (FEA), a number of states, including Colorado, have begun taking the lead in assuring higher professional standards for QIs. Some of the newly enacted requirements (which can vary from state to state) include:
  • Qualified escrow and/or trust accounts for client funds
  • Minimum bond and insurance requirements
  • Fund withdrawal authorization requirements
  • Registration and licensing requirements for QIs
  • Investment limitations on exchange proceeds
These are just some of the new state level regulatory requirements for QIs, and Accruit has taken a leadership role in making sure that legislators are fully informed in order to properly protect exchangers.
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