• Qualified intermediary duties play a crucial role in the integrity of property exchanges.suburban shopping center under construction image by jedphoto from Fotolia.com
  
  Qualified intermediary (QI) duties involve handling real estate transactions called 1031 exchanges. A 1031 exchange allows the owners of property held for business, trade, or investment to "exchange" the property for "like-kind" real estate. The exchange, instead of outright sale, enables the buyer, seller, or both, to receive capital gains tax deferral. The regulations do not allow investors to allow the sale proceeds to "pass through their hands." The money goes directly into an escrow account controlled by the QI. The buyer may only receive cash upon completion of the transaction.
  
  

Qualified Intermediary Training

• Qualified intermediaries have training in negotiation techniques, contract law, investment analysis, and escrow procedures. The person should also understand taxation and real estate practices. The training provides qualified intermediaries with the knowledge to identify possible problems and help the transaction go smoother.
  
  

Qualified Intermediary Role

• A qualified intermediary has the responsibility of facilitating deferred exchanges. The Internal Revenue Service prohibits business acquaintances or family members from serving in this capacity. Functioning as independent parties, qualified intermediaries protect the honesty of the real estate transaction. The QI must work in accordance with IRS laws to ensure tax deferred treatment and prevent misappropriation of proceeds.
  
  

Services

• The professional qualified intermediary receives a fee for his or her services. Services provided by the QI include a consultation with the owner. The purpose of the meeting is to collect information and to understand the goals of the individual taxpayer. The qualified intermediary may also meet with the taxpayer's attorney, accountant, title company, and real estate agent. The QI completes an exchange transaction analysis, which outlines the structure of the exchange transaction. Sometimes the QI may conduct research on various issues, and must prepare various documents to structure the exchange.
  
  

The Process

• The qualified intermediary acquires the relinquished property from the taxpayer or seller, and transfers the relinquished property to the buyer. The funds from the sale of the property go directly to the qualified intermediary. This ensures the taxpayer never has control or constructive receipt of the proceeds. The qualified intermediary must acquire the replacement real estate from the seller. The QI transfers the replacement property to the taxpayer to complete the exchange. The taxpayer has to complete this part of the transaction within 180 days of relinquishing the property.
  
  

Expert Insights

• The laws do not require licenses for qualified intermediaries. Qualified intermediaries do not undergo any type of regulation or audit. The 1031 Exchange Made Simple website states that taxpayers must conduct their own due diligence and ask questions before selecting a qualified intermediary. Check for insurance, financial stability, and bonding. Ask about the QI's structure, internal processes, and controls to safeguard funds from theft or embezzlement.