The treasury regulations have various safe harbors for 1031 exchanges. One of these is the qualified intermediary (or QI) safe harbor. The qualified intermediary acts as a neutral third party administrator unbeholden to the taxpayer to facilitate or administer The 1031 exchange.
What a Third-Party Administrator Does
The third-party administrator typically prepares the 1031 documents, provides instructions to the settlement agent, and most importantly holds the proceeds from the relinquished property so that the taxpayer or exchangor does not have any actual or constructive receipt of the net proceeds or 1031 funds.
Who Can be Your 1031 Third-Party Administrator?
The regulations in the Internal Revenue Code prohibit the administrator from being anyone that has in the last two years been an agent or employee of the taxpayer. So your attorney, your account, and your employees are all disqualified from acting as your administrator. Also, related parties such as your mother, or your son, or other relatives are excluded or prohibited from acting as your 1031 third-party administrator. The idea is that the qualified intermediary should be unbeholden, unrelated, and acting independently of the taxpayer or exchangor doing the exchange.
- 1031 Hotline: If you have questions about the role of the third-party administrator in a 1031 exchange, feel free to call me at 612-643-1031.
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