A Qualified Intermediary is an independent party who facilitates tax-deferred exchanges. The Taxpayer or other disqualified persons who have entered into a written agreement with the taxpayer cannot act as an intermediary to the exchange. Disqualified persons include anyone who can be considered your agent, anyone who is a related person as defined in the Code, or anyone who bears a relationship as your agent as described in the Code. An agent can include anyone who has acted as your employee, accountant, investment banker, attorney, real estate agent or broker within the previous two years.
There must be a written agreement between the taxpayer and the intermediary that expressly limits the taxpayer’s rights to receive, pledge, borrow or otherwise obtain the benefits of the money or property held by the intermediary. Acting under a written exchange agreement, the Intermediary acquires the relinquished property and transfers it to the buyer. The Intermediary holds the sales proceeds which satisfies the rule that prevents the taxpayer from having actual or constructive receipt of the funds. Finally, the Intermediary acquires the replacement property and transfers it to the taxpayer to complete the exchange within the appropriate time limits.
The use of a Qualified Intermediary is a “safe harbor” established by the Treasury Regulations and the IRS will not consider the taxpayer to be in receipt of the funds if the taxpayer utilizes a Qualified Intermediary. The sale proceeds go directly to the Intermediary, who holds the funds until they are needed to acquire the replacement property. The funds are then delivered by the Intermediary directly to the closing agent.
The Qualified Intermediary is also referred to as Exchange Facilitator or Exchange Accommodator.
There are no licensing requirements for Intermediaries. However, the Federation of Exchange Accommodators has established an education program for its members that will distinguish them as the experts in the field of tax deferred exchanges. The program offers the designation of CES™ (Certified Exchange Specialist) to those who qualify. In order to achieve this designation, an individual must pass an extensive written examination on the tax code and IRS regulations. Qualification is also based on an individual’s experience in the industry, as well as moral and ethical considerations. The CES™ designation will further assure clients that their Intermediary has the knowledge, expertise and integrity to successfully complete the exchange transaction as required by the IRS.
