Lawyers have a special relationship with their clients and want to provide the best possible service. But when it comes to facilitating a 1031 exchange if you've been the agent of the taxpayer or employee of the taxpayer during the last two years, you are excluded from acting as their qualified intermediary.
The Role of a Qualified Intermediary
A qualified intermediary is supposed to be a neutral third party who is beholden to the taxpayer, beyond their sway. I generally recommend that you don't use your colleague from across the hallway that's in the same law firm to act as an intermediary. Instead, for a relatively nominal fee, you can use a professional third-party intermediary that is engaged exclusively in the business of facilitating exchanges, and that has a proven track record; who carries specific errors and omissions insurance and fidelity bonds, and also has the expertise and experience to help support you in facilitating your client’s successful transition from the relinquished property to the replacement property.
In other words, lawyers get to wear one hat in these 1031 transactions - to be the lawyer. while the qualified intermediary wears the hat of the facilitator or accommodator to provide separate and distinct services in the facilitation of your client’s successful 1031 exchange.
- 1031 Hotline: If you have questions about what lawyers need to know about 1031 exchanges, feel free to call me at 612-643-1031.
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