Qualified Intermediary
The Safe Harbor –
Treasury Regulations established a number of guidelines called "safe harbors". To perform a defensible tax-deferred exchange of investment or income property under these IRS guidelines a seller (taxpayer) cannot have constructive receipt of the cash proceeds of a sale. Unlike the sale of a personal residence the seller of investment property must use a
neutral third party known as a Qualified Intermediary.
Qualified Intermediaries –
A "Qualified Intermediary" (QI) is an entity other than the Exchangor or a person related to the Exchangor who, for a fee, acts to facilitate the exchange by (i) acquiring the relinquished property from the Exchangor and (ij) acquiring the replacement property and subsequently transferring it to the Exchangor to complete the exchange.
Disqualified Persons –
The safe harbor rules in Reg. Sec. 1.1031 (k)-1 (g) also define "disqualified persons" who could be deemed potential agents of the taxpayer and therefore disallow the exchange if used as an Intermediary.
Disqualified parties include:
1) A close family member or a controlled corporation, partnership or trust
2) Employees
3) Entities considered agents of the investor such as their; attorney or accountant, banker or broker, or real estate agent or broker
Given the availability of professional Qualified Intermediaries who are clearly not agents or fiduciaries outside of any exchange transaction, there is no reason to risk disallowance of an exchange by using the Exchangor's attorney, real estate agent or any other party who can be construed as having an agency relationship.
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