1031 Exchange Blog

QI SERVICES

What is a Qualified Intermediary?

05/07/24

Looking to do a 1031 Exchange? The word Qualified Intermediary likely came up in your research, but what is a Qualified ...

Authored by: meredithb@accruit.com

Authored on: Tue, 05/07/2024 - 18:47

QI Services

<h2 paraeid="{ea696aea-e163-4bc2-bd50-09072ec6e8fb}{223}" paraid="460778413">Qualified Intermediary Explained </h2>

A Qualified Intermediary (QI) is an independent third party that facilitates Internal Revenue Code (IRC) Section 1031 tax-deferred exchanges. Prior to the issuance of the <a href="https://www.accruit.com/sites/default/files/Internal%20Revenue%20Servic…; rel="noreferrer noopener" target="_blank">IRS Treasury Regulations</a> in 1991, the buyer was an integral part of the Sellers choice to do an exchange.  The regulations allowed for a Qualified Intermediary to fill that role and be the party with whom the Exchanger is exchanging with. According to the Regulations for an intermediary to be considered “qualified”, it cannot be an agent of the exchanger at the time of the transaction. The Qualified Intermediary must enter into a written agreement for the exchange with the Exchanger, as well as acquire and transfer the Relinquished and Replacement Properties on behalf of the Exchanger, as required by the terms of the exchange agreement.  The acquisition of the sale property, referred to as the Relinquished Property, and the new property being purchased, referred to as the Replacement Property, can be accomplished in a number of ways. However, it is typically satisfied under the rules by the exchanger assigning the rights of the Exchanger under the contracts and providing notice to all parties of such assignment.

<h2 paraeid="{f055dab9-8f9d-48b6-ac08-acbe6e645b67}{143}" paraid="1222374603">Role & Purpose of a Qualified Intermediary: </h2>

The role of the Qualified Intermediary is to act as a middleman in the real estate transaction, handling the acquisition and transfer of property and ensuring that the many specific detailed rules set forth in the regulations are being followed and the integrity of the exchange is intact to achieve tax deferral.

It is also necessary under the rules that the Exchanger avoid actual or constructive receipt of the proceeds of the Relinquished Property sale during the period of time between the sale and the purchase.  The Regulations suggest several ways to ensure the Exchanger is not deemed to have access to those funds, but generally it is satisfied by the Qualified Intermediary holding those funds on behalf of its client, the Exchanger. That is a secondary role it fills.

In short, the purpose of a Qualified Intermediary is to act as a party who the Exchanger can actually exchange with and to keep the transaction in compliance with the many details set forth in the Regulations. Secondarily, it acts as a convenient party to safeguard the exchange funds during the transaction and ensure the Exchanger is not in actual or constructive receipt of them.

<h2 paraeid="{a6bed77c-35ed-4a84-8662-1b4e5842dcd1}{153}" paraid="1670701829">Benefits of a Qualified Intermediary: </h2>

As noted above, the Qualified Intermediary offers many different benefits in the 1031 Exchange process, as it is a nuanced topic that requires deep knowledge. A few advantages to having a QI include their expert knowledge on the rules and regulations of 1031 Exchanges, as well as IRS guidelines, ensuring compliance and reducing the risk of disqualification. They safeguard the funds generated from the sale of the Relinquished Property, holding them in a secure account to prevent direct receipt by the Exchanger. A QI ensures that the Replacement Property is acquired within the strict 180-day timeframe required by the IRS. This time management allows investors to successfully complete the exchange and defer capital gains tax.

<h2 paraeid="{eee39002-a99f-41df-b9bb-8c069220a721}{104}" paraid="2067296102">Choosing a Qualified Intermediary: </h2>

Selecting the right Qualified Intermediary is essential for the success of a 1031 Exchange. It's important to consider several critical factors when making this decision:

Experience: Seek out an established QI with a demonstrated track record and extensive experience in facilitating 1031 Exchanges. A seasoned QI will possess the necessary expertise to guide you through the process and minimize potential risks. Seek QIs with a deep bench of 1031 Exchange experts including staff attorneys, CPAs, as well as Certified Exchange Specialists®.

IRS Compliance: Ensure that the Qualified Intermediary you select strictly adheres to all IRS regulations and guidelines. Request and research references and testimonials to verify their compliance history and credibility.

Security and Protection: Assess the level of security and protection provided by the QI. Verify their use of reputable and highly rated banking institutions to hold the funds. Inquire about the QI's fidelity bond and errors and omissions coverage to protect against unforeseen circumstances.

Customer Service: The chosen Qualified Intermediary should prioritize exceptional customer service. They should be readily available to address your questions and concerns throughout the exchange process.

Professional Affiliations: Look for a QI affiliated with professional organizations such as the Federation of Exchange Accommodators (FEA). Membership in such organizations indicates a commitment to maintaining industry standards and best practices.

When entering a 1031 Exchange, it is crucial to involve a Qualified Intermediary. They facilitate and handle the exchange of funds and property while ensuring regulatory compliance, providing for tax-deferred status. While it is not only paramount to involve a QI in your transaction, choosing the right one is just as important. As a leading Qualified Intermediary, learn more about Accruit’s boutique-style service and factors in our success <a href="https://www.accruit.com/qi-services" rel="noreferrer noopener" target="_blank">here</a>.

The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.

Tue, 10/22/2024 - 17:52

Blog

Off

Do I Need a 1031 Exchange Qualified Intermediary Near Me?

04/23/24

Many Exchangers start their search for a Qualified Intermediary (QI) by searching the internet for “a Qualified Intermediary near me.” ...

Authored by: meredithb@accruit.com

Authored on: Tue, 04/23/2024 - 20:55

QI Services

While local QIs offer proximity and knowledge of specific regulations, national QIs like Accruit provide broader expertise, resources, and risk management capabilities. National QIs understand regulations across the country, including state-specific mandates, such as those in Colorado and California.

<h2 paraeid="{5b04b97d-3369-4c3c-9e46-cccd9e85ea5c}{153}" paraid="324070028">Local QI vs. National QI </h2>

Generally, the most important aspect of picking a Qualified Intermediary to help an Exchanger carry out their 1031 Exchange is peace of mind, competency, and dependability. These attributes are not exclusive to local businesses, in fact they might be more commonly found with a national QI.

When considering a QI for a 1031 Exchange, the decision shouldn’t be based on proximity, but rather several other factors that have a greater impact on the exchange, including the following:

<ul>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="1" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="14" role="listitem">
Local: Knowledgeable of specific local regulations & transactions, smaller volume of cases, limited expertise in complex transactions
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="1" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="14" role="listitem">
National: Knowledgeable of wide range of regulations & transactions across different states, larger volume of cases, greater expertise with complex transactions 
</li>
</ul>
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="2" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="14" role="listitem">
Resources to Scale

<ul>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="2" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="14" role="listitem">
Local: May be more limited on resources, work on a smaller scale with fewer cases, locally concentrated network
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="2" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="14" role="listitem">
National: Typically, robust resources and efficient handling of large volume of cases, wider network of professionals 
</li>
</ul>
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="3" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="14" role="listitem">
Risk Mitigation

<ul>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="3" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="14" role="listitem">
Local: Might not be able to offer the same level of risk mitigation 
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="3" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="14" role="listitem">
National: Likely to have strong insurance coverage and bonding in place, added safeguards for clients  
</li>
</ul>
</li>
</ul>

While both types of QIs have their benefits, national QIs tend to offer wider expertise, resources, and risk management capabilities. However, the decision ultimately depends on individual needs, transactional complexity, and personal preferences.

<h2 paraeid="{22e154a3-61a9-4b3c-856c-e299813fb97d}{113}" paraid="1957673518">State Regulations for QIs </h2>

When selecting a Qualified Intermediary, there are many options to choose from, some local and some national. While the idea of a local QI may seem attractive, a nationally recognized QI could provide the Exchanger with a better experience and more robust knowledge of the rules & regulations of IRC Section 1031, including the most recent court cases.

It’s important to remember there is no federal regulation of Qualified Intermediaries, however there are some state-level regulations in a handful of states that are meant to protect the Exchanger when facilitating an exchange with Relinquished Property within that state. We will focus on Colorado, Accruit’s headquarters, and California, a state with some of the most extensive requirements for Qualified Intermediaries.

<h3 paraeid="{22e154a3-61a9-4b3c-856c-e299813fb97d}{237}" paraid="318966997">Colorado </h3>

Requirements for Qualified Intermediaries conducting 1031 Exchanges vary from state-to-state. In 2009, Colorado’s legislature passed <a href="https://leg.colorado.gov/sites/default/files/images/olls/2009a_sl_116.p…; rel="noreferrer noopener" target="_blank">HB09-1252</a>. This legislation includes the following requirements:

<ul role="list">
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="1" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="3" role="listitem">
QIs must maintain a minimum $1 million fidelity bond, and a $250,000 E&O policy.  
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="2" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="3" role="listitem">
QIs must deposit exchange funds into an escrow account in which both QI and Exchanger need to authorize withdrawals. If the account holds more than $250,000, the client must provide written authorization for a withdrawal.  
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="3" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="3" role="listitem">
QIs must notify clients within two days of any changes in asset ownership, as well as always acting as a client fiduciary for the 1031 Exchange funds.  
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="4" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="3" role="listitem">
QIs are prohibited from storing client exchange funds in the same account as operating funds, as well as lending exchange funds to anyone other than the Exchange Accommodator Titleholder.  
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="5" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="3" role="listitem">
Seller must set aside money for taxes on the property. To satisfy this requirement, investors executing a 1031 Exchange must sign an “affirmation of reasonably estimated tax to be due”. This is to notify the state that the investor won’t owe taxes, since they will be deferred using a 1031 Exchange.  
</li>
</ul>

<h3 paraeid="{a88319e4-4409-40de-a94f-a750f507e79d}{134}" paraid="2121492888">California </h3>

California imposes similar requirements for QIs as Colorado, in <a href="http://www.leginfo.ca.gov/pub/07-08/bill/sen/sb_1001-1050/sb_1007_bill_…; rel="noreferrer noopener" target="_blank">Senate Bill 1007, Chapter 708</a>  which include:

<ul role="list">
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="6" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="1" role="listitem">
Identical fidelity bond and Errors & Omissions (E&O) policy. 
</li>
</ul>

<ul>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="3" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="1" role="listitem">
Investors/property owners cannot evade state taxes by exchanging California property for out-of-state property. 
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="3" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="1" role="listitem">
Profits from the replacement property sale are taxed both in the selling state and California. 
</li>
</ul>
</li>
</ul>

<h3 aria-level="3" paraeid="{a88319e4-4409-40de-a94f-a750f507e79d}{244}" paraid="1486450575" role="heading">Other State Regulations </h3>

In addition to Colorado and California, other states with Regulations on Qualified Intermediaries include:

<ul role="list">
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="4" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="2" role="listitem">
Idaho 
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="5" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="2" role="listitem">
Maine 
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="6" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="2" role="listitem">
Nevada 
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="7" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="2" role="listitem">
Virginia 
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="8" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="2" role="listitem">
Washington 
</li>
</ul>

With help from the Federation of Exchange Accommodators (FEA), several states including Colorado are instituting further requirements, leading by example in assuming higher industry standards for Qualified Intermediaries.

Requirements include:

<ul role="list">
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="9" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="15" role="listitem">
Qualified escrow and/or trust accounts for client funds. 
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="10" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="15" role="listitem">
Minimum bond and insurance requirements 
</li>
</ul>

To conclude, as an Exchanger, you do not necessarily need to have a Qualified Intermediary near you, since IRC Section 1031 is in the federal tax code, a local presence doesn’t necessarily provide any additional benefit. While an Exchanger might not be able to walk into an Accruit office, Accruit’s effortless and consistent accessibility makes direct communication simple via live chat, phone calls, virtual meetings, and email communication directly with the parties handling your exchange.

<h2 paraeid="{3ebf5be3-67f7-49b3-b2c5-fb231de69f25}{161}" paraid="1406959131">The Accruit Difference </h2>

Accruit is a national leading 1031 Exchange Qualified Intermediary headquartered in Denver, CO with satellite offices across the country including Chicago, IL, Dillon & Bozeman, MT, Miami, FL, Philadelphia, PA, Detroit, MI, and Phoenix, AZ, to name a few. In these cities, Accruit is not only a leading national QI, but also a reliable, local option for those wanting to stick with a QI closer to home.

While there is an abundance of Qualified Intermediaries available, they do not all offer the same level of service as a national QI, like Accruit. Accruit takes pride in offering boutique-style services across a diverse range of exchanges from simple to the most complex.

<ul role="list">
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="4" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="12" role="listitem">
Accruit sets itself apart from other QIs in a variety of ways, including: $50 million Fidelity Bond, $25 million E&O, and $15 million Cyber Liability.  
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="5" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="12" role="listitem">
Robust team of 1031 Exchange experts, including five staff attorneys, CPAs, and multiple Certified Exchange Specialists® (CES). 
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="6" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="12" role="listitem">
The developer of the patented 1031 Exchange workflow technology that allows for a seamless and efficient exchange process in turn allowing our team to provide a better customer experience and more meaningful dialogue with Exchangers since the mundane data collection is electronic and automated through embedded controls. 
</li>
</ul>

Accruit is specialized to accommodate all shapes and sizes of 1031 Exchanges, regardless of a variety of complex factors including:

<ul role="list">
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="7" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="17" role="listitem">
Institutional Investors with High-Volume Exchanges 
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="8" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="17" role="listitem">
Exchanging involving Multiple Buyers and Sellers, including LLCs, Corporations, and Partnerships 
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="9" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="17" role="listitem">
Fractional Interests (Delaware Statutory Trusts (DSTs) and Tenants in Common (TICs)) 
</li>
</ul>

Accruit’s patented 1031 Exchange technology, Exchange Manager ProSM, sets us apart from other QI companies. Standardizing workflow with automated deadline reminders and document creation increases efficiency, decreasing error potential throughout the 1031 Exchange process. This software coupled with our Qualified Professionals, including five staff attorneys, Certified Public Accountants (CPAs), and multiple Certified Exchange Specialists® (CES), makes for diligent, streamlined exchanges.

For an Exchanger, a national Qualified Intermediary with a comprehensive array of services and expertise, like Accruit, makes navigating the complexities of 1031 Exchanges become not just manageable but effortless. Whether you're engaging in forward exchanges, reverse exchanges, or complex transactions involving multiple parties and properties across various states, Accruit’s expert team and advanced technology ensure a seamless experience. At Accruit, we don't merely facilitate 1031 transactions; we enhance them, providing unmatched, meaningful service and expertise at every turn.

The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.

Thu, 04/25/2024 - 14:28

Blog

Off

1031 Exchange Qualified Intermediary – What does “Qualified” Mean?

08/28/23

Qualified Intermediaries facilitate 1031 Exchanges, but what exactly does "Qualified" mean? Learn more about how "Qualified" is defined by the IRS ...

Authored by: marketing

Authored on: Mon, 08/28/2023 - 21:29

QI Services

When a group was asked “According to the IRS, what does ‘Qualified’ mean?” in regard to a Qualified Intermediary in a 1031 Exchange, answers included, knowledgeable, honest, educated, and meet certain security requirement per the IRS. Logical responses and assumptions, but they are not accurate. “Qualified”, according to the IRS, simply means that they are not disqualified.

<h2>Disqualified Parties in a 1031 Exchange</h2>

If “Qualified” only means not disqualified, who is disqualified to act as a Qualified Intermediary (QI) in a 1031 Exchange? The Exchanger for one; an Exchanger cannot act as their own QI, based on the rule that an Exchanger cannot be in “actual or constructive receipt of the sale proceeds.” Additionally, a relative of the Exchanger cannot be the QI, nor can an agent of the Exchanger, which would include an employee, attorney, accountant, investment banker, real estate agent or broker of the Exchanger within the last two years. Aside from these disqualified parties, nearly anyone can act as the Qualified Intermediary.

<h2>Regulations on Qualified Intermediaries</h2>

Most people are shocked to find out that there are no federal regulations or licensing requirements on 1031 Exchange Qualified Intermediaries. QIs are not overseen by any governing body, including the IRS and state Banking Departments. There are eight states in the country that regulate QIs on the state-level including, New Hampshire, Virginia, Washington, Nevada, Idaho, Colorado, California, and Maine. All other states have no requirements or regulations on QIs.

Even states with regulations can face security issues. Some time ago, a QI based in a suburb of Las Vegas disappeared with an estimated $87 million dollars. In another example, a QI had invested 50% of the exchange funds in FTX cryptocurrencies. FTX crypto plummeted and investors with their exchange funds at this particular QI were told that they were only getting 50% of their money back. The long reaching effects of this are yet to be seen, but one thing is for sure: The investors that had their exchange funds with these particular QIs not only lost their money, but will also have to pay the capital gains taxes on the sale of their investment property, because they have a failed 1031 Exchange. This is a horrible situation that could have been avoided if the Exchangers had known what to look for in a reputable Qualified Intermediary.

While there isn’t a federal governing body over Qualified Intermediaries, there is a national trade organization, the Federation of Exchange Accommodators (FEA), formed in 1989 to represent Qualified Intermediaries and affiliates of the 1031 Exchange industry. Many of the most reputable 1031 Exchange Qualified Intermediaries are members of the FEA. The FEA promotes the 1031 Exchange industry through established ethical standards for QIs, innovation and collaboration amongst industry colleagues, and education for both industry members, as well as the general public on the benefits of 1031 Exchanges.

<h2>Identify A Qualified, Qualified Intermediary</h2>

As mentioned above, the extent of being “Qualified” ranges widely. So, what should you look for in a Qualified Intermediary? Qualified Intermediaries in the industry range from the small sole proprietor to the large corporately owned firms. They all facilitate 1031 Exchanges, but the level of service, expertise, and security can still differ a great deal so <a href="/blog/find-right-qualified-intermediary-facilitate-your-1031-exchange" title="Find the Right Qualified Intermediary for Your 1031 Exchange">finding the right QI</a> is essential. As consumers, one of the biggest factors in determining which QI to use should be the security of exchange funds. At a minimum, an Exchanger should look for some form of bonding, errors and omissions insurance, third-party reconciliation of the exchange funds, and all disbursements should require two signatures.

Additional layers of security could include:

<ul>
<li>Annual audits conducted by reputable accounting firms. 
 </li>
<li>Exchange funds are specifically identified to each exchange account through a sub-accounting banking system. 
 </li>
<li>Exchange funds are professionally managed by a third-party investment firm, not the corporate parent or an employee of the Qualified Intermediary. 
 </li>
<li>Funds are held in custodial accounts with a large national bank. This is significant protection over a bank deposit account because a custody account is not considered to be an asset of the bank. Custodial accounts would not be subject to general creditors in the unlikely event of a bank failure. 
 </li>
<li>Sarbanes-Oxley compliance – if you select a QI owned by a publicly traded corporate parent. Sarbanes-Oxley is a federal law passed in response to a number of major corporate and accounting scandals involving Enron, Tyco International and MCI/WorldCom, etc.</li>
</ul>

When it comes time to set up a 1031 Exchange with a Qualified Intermediary, thoroughly vet the options to ensure you are truly getting a “Qualified” Qualified Intermediary.

The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.

Mon, 08/28/2023 - 21:41

Blog

Off

Find the Right Qualified Intermediary to Facilitate Your 1031 Exchange

01/04/23

When evaluating Qualified Intermediaries there is much to consider including expertise, service and security of funds and size doesn't necessarily ...

Authored by: marketing

Authored on: Wed, 01/04/2023 - 15:37

QI Services

As with most service industries, not all Qualified Intermediaries (QIs) are created equal, nor do all QIs service their clients with the same standards and expectations in place. Below is a list of criteria you should evaluate prior to selecting a Qualified Intermediary to facilitate your 1031 exchange.

<ol>
<li>Bigger Isn’t Always Better 
It is easy to assume that the largest company might be the best option, but that is seldom the case. We estimate that roughly 30% of the Live Chats we received through our website are from individuals and tax advisors that have a 1031 exchange open with a different QI but are unable to get in touch with them to answer their time sensitive questions in relation to their 1031 exchange, and so they reach out to us. 
 </li>
<li>Easy Accessibility 
Today’s consumer wants accessibility at their fingertips, and with today’s technology why shouldn’t they get it? When evaluating QI options, pay special attention to how easily you will be able to contact them in the future. 
 
<ul>
<li>Do they have a (800) number? Does a real person answer the call without you having to push several buttons to navigate an automated system? Will you have the ability to speak with an attorney, Certified Exchange Specialist®, or other subject matter expert regarding thorny situations? 
 </li>
<li>Do they have a live chat on their website, with a real specialist on the other end available to quickly answer your questions? 
 </li>
</ul>
</li>
<li>QI Roster 
A QI is only as good as its employees. When researching your QI options, look into the breakdown of their internal team. 
 
<ul>
<li>Do they have on-staff attorneys specializing in 1031 Exchanges? Not all 1031 exchanges are cut and dry; some have complex aspects and nuances that require a specialized 1031 exchange attorney to ensure validity regarding IRC 1031. If the QI doesn’t have on-staff attorneys, you can expect delays and sometimes increased fees to bring in outside council. 
 </li>
<li>What is their largest department? If it is not the Service department, then you might infer service isn’t their priority. A QI set-up with an adequate service and processing team will be set-up for successfully processing 1031 exchanges. 
 </li>
</ul>
</li>
<li>You Get What You Pay For 
As with most things, when it comes to a 1031 exchange, you get what you pay for. Pricing is often reflective of the level of personal attention you will receive throughout the process. Companies that offer the lowest price do so by offering minimal touchpoints with their clients, and often minimal experience among their staff. Their goal is quantity, not quality. Similarly, companies that offer flat-rate pricing are not considering the unique aspects that accompany most 1031 Exchanges. 1031 Exchanges are not one size fits all and therefore a flat-rate pricing model doesn’t work.</li>
</ol>

If you are looking to start a 1031 Exchange, we encourage you to reach out to various QIs and then evaluate their overall service offerings. Ask yourself the following questions of each QI: Were they easy to get ahold of via phone, live chat, email? Did they offer 1031 Exchange information and answers without charge? Do they have sufficient expertise and servicing team members?

At Accruit, we pride ourselves on providing the world class customer service with a consistent Net Promoter Score of over 80; we have received over 200 5-star Google reviews from our valued clients; and perhaps most telling, over 93% of our clients are repeat customers or direct referrals from other companies within the real estate industry. Additionally, Accruit has five on-staff attorneys that are 1031 exchange subject matter experts boosting over 100 years collective experience.

If you have any questions or would like more information on our 1031 Exchange services, please reach out to us today!

Thu, 01/05/2023 - 18:01

Blog

Off

1031 exchange tips: selecting the right QI

02/08/22

Choosing a Qualified Intermediary (QI) is an important decision. Read Accruit's 1031 Exchange QI tips.

Authored by: Anonymous

Authored on: Tue, 02/08/2022 - 17:41

QI Services

In 2021, over 20% of commercial real estate participated in 1031 Exchanges and commercial property sales nearly doubled 2020's totals. Real estate investors aren't anticipating a slow down for 2022, this means another big year for 1031 exchanges. Given these projections, it is important to remember that choosing the right Qualified Intermediary to help you process your tax deferred exchange is crucial. Read through the tips below on choosing the right team to help you process your 1031 Exchange.

Choosing a Qualified Intermediary (QI) is an important decision, and as such, the process shouldn't be taken lightly. After all, your QI will be guiding you through a maze of federal and state requirements as well as safeguarding the proceeds from the sale of your relinquished property. Given the potential tax consequences involved with an improperly structured exchange and the safety issues related to your proceeds, a true due diligence approach should be taken before committing to a QI. 
 
To begin, let's take a quick look at some of the QI's responsibilities:

<ul>
<li>Structuring the exchange</li>
<li>Preparing the related documentation</li>
<li>Safeguarding proceeds from the sale of the relinquished property(s)</li>
<li>Continuous monitoring and advising to ensure compliance with federal and state 1031 and QI requirements</li>
</ul>

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 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:

<ul>
<li>Qualified escrow and/or trust accounts for client funds</li>
<li>Minimum bond and insurance requirements</li>
<li>Fund withdrawal authorization requirements</li>
<li>Registration and licensing requirements for QIs</li>
<li>Investment limitations on exchange proceeds</li>
</ul>

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. However, our responsibility to inform doesn't stop there. It also includes educating the marketplace to ensure the right due diligence is performed prior to choosing a QI. Items we advise businesses to research include:

<ul>
<li>The QI's technical expertise and experience</li>
<li>Banking processes and guidelines</li>
<li>Certified Exchange Specialist® (CES®) on staff</li>
<li>Quality control</li>
<li>Insurance and bonding coverage</li>
<li>Employee recruitment (including background checks with continuous monitoring)</li>
<li>Membership in the FEA</li>
<li>Applicability and QI's status related to relevant state regulatory requirements</li>
<li>References</li>
</ul>

This article is merely intended to start a discussion regarding the importance of choosing the right QI. In practical terms, the process should be far more in-depth and you should include a trusted tax advisor as part of your decision team.

If you'd like more information on selecting a QI, <a href="/contact-us" target="_blank">please contact us</a>. We can help you understand the entire process and we're glad to connect you with helpful resources in the tax industry and at the FEA.

Updated 2.08.2022.

Fri, 05/13/2022 - 19:13

Blog

Don't Select Just Any QI, Here's How to Choose the Right One

12/03/20

When looking for a qualified intermediary who is local to you, there are a lot of things to consider. It's ...

Authored by: Anonymous

Authored on: Thu, 12/03/2020 - 21:03

QI Services

Choosing a local Qualified Intermediary (QI) is an important decision, and as such, the process shouldn't be taken lightly. After all, your QI will be guiding you through a maze of federal and state requirements as well as safeguarding the proceeds from the sale of your relinquished property. Given the potential tax consequences involved with an improperly structured exchange and the safety issues related to your proceeds, a true due diligence approach should be taken before committing to a QI.

To begin, let's take a quick look at some of the QI's responsibilities:

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:

<ul>
<li>The QI's technical expertise and experience</li>
<li>Banking processes and guidelines</li>
<li>Certified Exchange Specialist® (CES®) on staff</li>
<li>Quality control</li>
<li>Insurance and bonding coverage</li>
<li>Employee recruitment (including background checks with continuous monitoring)</li>
<li>Membership in the FEA</li>
<li>Applicability and QI's status related to relevant state regulatory requirements</li>
<li>References</li>
</ul>

This article is merely intended to start a discussion regarding the importance of choosing the right QI locally. In practical terms, the process should be far more in-depth and you should include a trusted tax advisor as part of your decision team.

Working with an independent Qualified Intermediary provides benefits you may not have considered. Learn why working with Accruit is different than QI's who are a part of a larger entity.

<a href="https://cta-redirect.hubspot.com/cta/redirect/6205670/41c260a7-a37c-4ff…; rel="noopener" target="_blank"><img alt="download free information qualified intermediary 1031 exchange" class="hs-cta-img" height="74" id="hs-cta-img-41c260a7-a37c-4ff2-a7a7-f7e36768feb6" src="https://no-cache.hubspot.com/cta/default/6205670/41c260a7-a37c-4ff2-a7a…; style="border-width:0px;" width="218" /></a><script charset="utf-8" src="https://js.hscta.net/cta/current.js"></script><script type="text/javascript"> hbspt.cta.load(6205670, '41c260a7-a37c-4ff2-a7a7-f7e36768feb6', {"useNewLoader":"true","region":"na1"}); </script>

Fri, 05/13/2022 - 19:13

Blog

QI SERVICES

BLOG UPDATES