QI Services

What is a Qualified Intermediary?

meredithb@accruit.com — Tue, 07 May 2024 18:47:50 +0000

What is a Qualified Intermediary?

meredithb@accr… Tue, 05/07/2024 - 18:47

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What is a Qualified Intermediary?

Qualified Intermediary Explained

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 IRS Treasury Regulations 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.

Role & Purpose of a Qualified Intermediary:

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.

Benefits of a Qualified Intermediary:

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.

Choosing a Qualified Intermediary:

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 here.

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.

Do I Need a 1031 Exchange Qualified Intermediary Near Me?

meredithb@accruit.com — Tue, 23 Apr 2024 20:55:13 +0000

Do I Need a 1031 Exchange Qualified Intermediary Near Me?

meredithb@accr… Tue, 04/23/2024 - 20:55

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Do I Need a 1031 Exchange Qualified Intermediary Near Me?

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.

Local QI vs. National QI

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:

Experience & Expertise
- Local: Knowledgeable of specific local regulations & transactions, smaller volume of cases, limited expertise in complex transactions
- National: Knowledgeable of wide range of regulations & transactions across different states, larger volume of cases, greater expertise with complex transactions
Resources to Scale
- Local: May be more limited on resources, work on a smaller scale with fewer cases, locally concentrated network
- National: Typically, robust resources and efficient handling of large volume of cases, wider network of professionals
Risk Mitigation
- Local: Might not be able to offer the same level of risk mitigation
- National: Likely to have strong insurance coverage and bonding in place, added safeguards for clients

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.

State Regulations for QIs

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.

Colorado

Requirements for Qualified Intermediaries conducting 1031 Exchanges vary from state-to-state. In 2009, Colorado’s legislature passed HB09-1252. This legislation includes the following requirements:

QIs must maintain a minimum $1 million fidelity bond, and a $250,000 E&O policy.
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.
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.
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.
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.

California

California imposes similar requirements for QIs as Colorado, in Senate Bill 1007, Chapter 708 which include:

Identical fidelity bond and Errors & Omissions (E&O) policy.

QIs must act as custodians and maintain strict management of client funds.
The California Franchise Tax Board mandates QIs to withhold 31/3% of the sales price for the Exchanger if the exchange fails.
For 1031 Exchanges involving out-of-state property, California enforces a "claw back" policy:
- Investors/property owners cannot evade state taxes by exchanging California property for out-of-state property.
- Profits from the replacement property sale are taxed both in the selling state and California.

Other State Regulations

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

Idaho
Maine
Nevada
Virginia
Washington

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:

Qualified escrow and/or trust accounts for client funds.
Minimum bond and insurance requirements

Fund withdrawal authorization requirements.
Registration requirements for QIs.
Investment limitations on exchange proceeds.

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.

The Accruit Difference

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.

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.
Robust team of 1031 Exchange experts, including five staff attorneys, CPAs, and multiple Certified Exchange Specialists® (CES).
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.

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

Institutional Investors with High-Volume Exchanges
Exchanging involving Multiple Buyers and Sellers, including LLCs, Corporations, and Partnerships
Fractional Interests (Delaware Statutory Trusts (DSTs) and Tenants in Common (TICs))

Seller-financed Transactions
Multiple Relinquished and Replacement Properties
Exchanges That Occur in Multiple States

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.

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

marketing — Mon, 28 Aug 2023 21:29:12 +0000

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

marketing Mon, 08/28/2023 - 21:29

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

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.

Disqualified Parties in a 1031 Exchange

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.

Regulations on Qualified Intermediaries

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.

Identify A Qualified, Qualified Intermediary

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 finding the right QI 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:

Annual audits conducted by reputable accounting firms.
Exchange funds are specifically identified to each exchange account through a sub-accounting banking system.
Exchange funds are professionally managed by a third-party investment firm, not the corporate parent or an employee of the Qualified Intermediary.
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.
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.

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.

Find the Right Qualified Intermediary to Facilitate Your 1031 Exchange

marketing — Wed, 04 Jan 2023 15:37:14 +0000

Find the Right Qualified Intermediary to Facilitate Your 1031 Exchange

marketing Wed, 01/04/2023 - 15:37

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Find the Right Qualified Intermediary to Facilitate Your 1031 Exchange

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.

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.
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.
- 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?
- Do they have a live chat on their website, with a real specialist on the other end available to quickly answer your questions?
QI Roster
A QI is only as good as its employees. When researching your QI options, look into the breakdown of their internal team.
- 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.
- 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.
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.

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!

1031 exchange tips: selecting the right QI

Anonymous — Tue, 08 Feb 2022 17:41:31 +0000

1031 exchange tips: selecting the right QI

Anonymous (not verified) Tue, 02/08/2022 - 17:41

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1031 exchange tips: selecting the right QI

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:

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

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:

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. 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:

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

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, please contact us. 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.

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

Anonymous — Thu, 03 Dec 2020 21:03:44 +0000

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

Anonymous (not verified) Thu, 12/03/2020 - 21:03

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

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:

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

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

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

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.

Five Reasons to Utilize a Qualified Intermediary in a 1031 Exchange

Anonymous — Wed, 09 Dec 2015 22:26:06 +0000

Five Reasons to Utilize a Qualified Intermediary in a 1031 Exchange

Anonymous (not verified) Wed, 12/09/2015 - 22:26

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Five Reasons to Utilize a Qualified Intermediary in a 1031 Exchange

Most savvy investors understand the importance of a sound tax strategy when making an investment decision. Therefore, it is no wonder that utilizing a like-kind exchange (LKE) when buying or selling real estate, or other business use assets, remains a primary wealth and tax strategy amongst investors both large and small. Unfortunately, many investors are blindly allocating the responsibility of managing their 1031 exchange to a local attorney, CPA, or banker.

So why could this be a mistake? Think of it like this; would you go to a local commercial real estate broker and ask them for advice on purchasing your next home? Probably not, because while they know and understand the market and real estate, they don’t know the residential market. A commercial broker will not have any familiarity of all the critical issues related to residential transactions - issues like what neighborhoods are booming, ideal size and floorplan for certain size of family, what areas have strong school districts, proximity to public transportation, etc.

Similarly, if you are looking to utilize a tax strategy like a 1031 exchange that needs to follow very strict set of guidelines why put your money in the hands of someone who may not understand its intricacies. Here are a few of the numerous reasons for engaging a qualified intermediary (QI) when conducting a 1031 exchange:

A qualified intermediary’s involvement with the Federation of Exchange Accommodators (FEA), the industry trade association for QIs, keeps them up-to-date on issues that may impact your exchange.
The FEA recommends that QIs hold a Fidelity Bond and Errors & Omission Insurance.
Many states have specific regulatory requirements targeting LKEs, and QIs are up-to-date on all state requirements.
QIs will utilize segregated commercial accounts, qualified trust accounts and/or escrow accounts, offering multiple security measures to safeguard the taxpayer’s funds.
Sophisticated QIs will have the capability to understand, handle, and process all kinds of exchanges, including forward, reverse, built-to-suit, and improvement exchanges.

The above list indicates many great reasons to use an experienced QI for a 1031 exchange. However, not all QIs are created equal, and it’s important that, when setting out to conduct a 1031 exchange, one exercises due diligence in researching your qualified intermediary. The above list can provide pertinent questions to ask during the process.

How to Choose a Qualified Intermediary for your 1031 Exchange

Anonymous — Wed, 12 Aug 2015 18:01:49 +0000

How to Choose a Qualified Intermediary for your 1031 Exchange

Anonymous (not verified) Wed, 08/12/2015 - 18:01

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How to Choose a Qualified Intermediary for your 1031 Exchange

There is an old adage that states “Just because you can do something-doesn’t mean you should.” This sage advice certainly applies to choosing a qualified intermediary to facilitate a 1031 like-kind exchange. The use of a qualified intermediary is essential to completing a successful 1031 exchange because, while the process of completing an exchange is straightforward, the rules are complicated and loaded with potential pitfalls for the exchanger if the exchange is not properly prepared.

To simplify the discussion and underscore the potential challenges of selecting a qualified intermediary, let’s identify parties who cannot act as a qualified intermediary. This list is relatively short and essentially disqualifies those who have acted in some advisory capacity for your company during the two years prior to a potential exchange:

Related Parties – Including certain family members and business entities with shared/common ownership.
Agents – Including individuals that have provided services to the exchanging taxpayer as an employee, attorney, accountant, investment banker or broker within the two year period ending on the date of the transfer of the first of the relinquished properties.

Aside from the above, virtually anyone can legally act in the capacity of a qualified intermediary, and therein lies the potential for disaster.

I spoke about 1031 exchanges recently at a conference where one of the attendees, an equipment dealer who had advised a customer on their like-kind exchange, stated his belief that the only requirement for a qualified intermediary was that they be a third party who could hold the money from the sale of the relinquished equipment until the seller requires the money for the purchase of replacement property.

While it's true that any third party can legally provide the service outlined above, they'll likely fall short of providing a properly-structured 1031 exchange that satisfies the Internal Revenue Service's safe harbor guidelines. I inquired further:

Did the selling party execute an Exchange Agreement outlining the safe harbor compliance rules? Without specific restrictions on the sales proceeds contained in this agreement, the exchanger still has constructive receipt of funds from the sale.
Did the third party create a separate bank account for the specific benefit of the seller/exchanger during the exchange period?
Did the seller notify the buyer that they had assigned their interests and rights in the sold equipment to the qualified intermediary?
Did your customer notify the seller that he had assigned his interests and rights in the new equipment to the qualified intermediary?
Did your customer send a Replacement Property Identification Notice to the qualified intermediary before the expiration of the identification period, identifying the equipment the buyer planned on purchasing by one of the two approved methods?
Did you (the equipment store) notify the customer that he had 45 days to identify potential replacement equipment and up to 180 days from the sale of the used equipment to purchase the new replacement equipment?
Did you provide all of the documentation and signatures required by the Treasury to ensure that the seller indeed satisfied the IRC safe harbor compliance rules and regulations?

When the color returned to his face and the nausea had passed, the equipment dealer uttered the far too common response of someone who had purported to serve as a qualified intermediary but was not one. “All we did was hold the money and then forward it to the seller when it came time to buy.”

Like-kind exchanges offer sellers of used equipment a tremendous opportunity to reinvest in funds that would otherwise be lost to taxes, but in order to enjoy this benefit exchangers must follow a document and deadline driven process. When engaging a qualified intermediary, be certain that they understand the necessary documents, steps, and safe harbors that are inherent in Section 1031. Doing so will result in a properly-structured and secure exchange.

Who You Gonna Call? Tax Busters!

Anonymous — Wed, 01 Jul 2015 16:48:50 +0000

Who You Gonna Call? Tax Busters!

Anonymous (not verified) Wed, 07/01/2015 - 16:48

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Who You Gonna Call? Tax Busters!

Call in Advance

Taxpayers often lose opportunities for 1031 tax deferred exchanges simply by not being informed and planning ahead. We frequently receive calls from a taxpayers who have already sold the relinquished property and would now like to exchange it for a replacement property. Often they still hold the proceeds check and have not deposited it, erroneously thinking that depositing the funds would be the factor that would invalidate an exchange. Unfortunately for several reasons, it's too late to enable the taxpayer to complete the exchange.

First, once the title company issues a check made out to the taxpayer, that person is in "actual receipt" of the funds. The IRS regulations provide any attempt at an exchange is not valid if the taxpayer has any "rights to receive, pledge, borrow, or otherwise obtain the benefits of money or other property" pertaining to the sale proceeds. So the error of failing to contact the exchange company until immediately after the sale of the relinquished property would disqualify any exchange attempt.

Even if the taxpayer were to return the check to the title company in exchange for a check made payable to the qualified intermediary, the taxpayer still could not qualify for an exchange. Under the regulations, the taxpayer needs to assign certain contract rights that he or she has under the relinquished property contract to the qualified intermediary no later than the day of closing. Further, the notice of this assignment is also required to be given to the relinquished property buyer. Failure by the taxpayer to assign the contract rights and notify the buyer of that assignment on a timely basis would, by itself, prevent any attempt at a deferred exchange.

Reverse Exchanges

These delays in getting the exchange company involved often take place in connection with reverse exchanges. A reverse exchange occurs when the taxpayer needs to close on the acquisition of the replacement property prior to the disposition of the relinquished property. This is sometimes referred to as a pure reverse exchange. The IRS does not recognize the validity of a pure reverse exchange. Had a taxpayer facing the acquisition of the new property before the sale of the old property called the exchange company prior to the acquisition of the new property, it would have been fairly simple to structure the transaction to qualify for tax deferral. This would involve the exchange company taking title to the new property on the date of closing and holding it for the benefit of the taxpayer until immediately after the sale of the relinquished property. At that time the exchange company would transfer the property to the client. Had a phone call been made to the exchange company a few days or more before the closing on the replacement property, there would have been time to structure the transaction to fit the IRS rules.

Summary

In short, there are a myriad of rules and procedures that need to be adhered to in order to structure a successful deferred exchange. Section 1031 is much form over substance and there are many ways for an exchange to get tripped up. First and foremost of these is failure to call the qualified intermediary well before the sale transaction is to take place to make sure all necessary documents are in place and that they are signed by the necessary parties. Maintaining close contact with the exchange company, can help the taxpayer navigate the safe harbors.

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Selecting a Trusted Qualified Intermediary for Your 1031 Exchange

Anonymous — Mon, 16 Dec 2013 13:28:55 +0000

Selecting a Trusted Qualified Intermediary for Your 1031 Exchange

Anonymous (not verified) Mon, 12/16/2013 - 13:28

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Selecting a Trusted Qualified Intermediary for Your 1031 Exchange

1031 Like-Kind Exchanges are a valuable asset for businesses’ growth and success. However, many companies seeking tax relief don’t know that there are no licensing requirements for Qualified Intermediaries. The only stipulation set forth states that a QI cannot be related to or have a financial relationship with the taxpayer.

In 2008, a 1031 Exchange and Qualified Intermediary service provider filed for bankruptcy, which froze customers’ exchange funds in illiquid securities. Customers were forced to seek their funds in bankruptcy court where many ended up missing their specified exchange period and facing tax liabilities due to the failed exchange.

As the nations leading QI for LKEs involving business assets, Accruit handles over 30,000 transactions a month totaling over $7 Billion annually. We deliver the highest level of integrity and competence to assure compliance with all regulations and to safeguard the security of funds awaiting reinvestment. Contact Accruit today to reinvest unnecessary taxes back into your company.

Read our full list of 1031 Exchange tips for selecting the right Qualified Intermediary.

QI Services

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What is a Qualified Intermediary?

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Qualified Intermediary Explained

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Call in Advance

Reverse Exchanges

Summary

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Selecting a Trusted Qualified Intermediary for Your 1031 Exchange

Selecting a Trusted Qualified Intermediary for Your 1031 Exchange

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Selecting a Trusted Qualified Intermediary for Your 1031 Exchange

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