A Qualified Intermediary (QI) is a professional provider of the services to administer all the factors required for a successful 1031 Exchange. Sometimes QI's are referred to as "accommodators" or "exchange facilitators".
A QI must be an independent person or company which has no personal relationship with the exchangers. The taxpayer cannot use any Real Estate agent, broker, investment banker or broker, accountant, attorney, employee or anyone who has worked for the taxpayer in those capacities within the past two years.
The major requirement of a successful exchange is that the IRS is convinced that the funds generated by the sale of a Property are NOT passed through the hands of the seller. Thus a QI receives the proceeds from the sale and delivers the funds directly to the closing agent for the property being purchased. The closing agent than deeds the property to the purchaser.
These steps must be accomplished within the regulations and timetable set down by the IRS.
Taxpayers should be careful in their selection of a Qualified Intermediary (QI) as there have been recent incidents of QI's declaring bankruptcy or otherwise unable to meet their contractual obligations to the taxpayer. It is recommended that a careful due diligence be performed in the selection of a QI. Some of the characteristics that should be considered are:
•1) Is the QI a national company?
•2) How many Exchanges has the QI completed in the past year?
•3) Is the QI Bonded?
•4) Does the QI keep client's funds in separated accounts?
•5) Can the client look at his account at any time?
•6) Is the QI financially sound?
When does Taxpayer use a QI?
A QI must be used in order for a taxpayer to sell and buy a "like property" and defer Capital Gains Tax on the transaction.
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