Role of the Qualified Intermediary
Acting as the Qualified Intermediary, our role is essential to completing a successful and valid delayed exchange
and staying within the safe provision of the 1031 Exchange regulations. The Qualified Intermediary is the
glue that puts the buyer and seller of property together into the form of a 1031 Exchange. Where such an
intermediary is used, the intermediary will not be considered the agent of the taxpayer for constructive
receipt purposes notwithstanding the fact that he may be an agent under state law and the taxpayer may
gain immediate possession of the money or property under the laws of agency.
In order to take advantage of the qualified intermediary "safe harbor" there must be a written agreement
between the taxpayer and intermediary expressly limiting the taxpayer's rights to receive, pledge, borrow
or otherwise obtain the benefits of the money or property held by the intermediary.
A qualified intermediary is formally defined as a person who is not the taxpayer or a disqualified person
who enters into a written agreement (the "exchange agreement") with the taxpayer and, as required by the
exchange agreement, acquires the relinquished property from the taxpayer, transfers the relinquished
property, acquires the replacement property, and transfers the replacement property to the taxpayer. The
qualified intermediary does not actually have to receive and transfer title as long as the legal fiction
is maintained.
The intermediary can act with respect to the property as the agent of any party to the transaction and
further, an intermediary is treated as entering into an agreement if the rights of a party to the
agreement are assigned to the intermediary and all parties to the agreement are notified in writing of
the assignment on or before the date of the relevant transfer of property. This provision allows a
taxpayer to enter into an agreement for the transfer of the relinquished property (i.e., a contract of
sale on the property) and thereafter to assign his rights in that agreement to the intermediary.
Providing all parties to the agreement are notified in writing of the assignment on or before the date
of the transfer of the relinquished property, the intermediary is treated as having entered into the
agreement and, upon completion of the transfer, as having acquired and transferred the relinquished
property.
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