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
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 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.
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