16. What is a qualified intermediary?

An Intermediary is that entity or person who:

  • Acts as the middle-man or "straw-man" in exchange transactions

  • Holds the proceeds of the sale of the relinquished property;

    does and buying of replacement property or selling of the relinquished property necessary on behalf of the exchanger.

  • Acquires the relinquished property from the exchanger and sells it to its ultimate buyer, using the proceeds of the sales to acquire and convey to the exchanger the replacement property.

Your intermediary should be a corporation rather than an individual in order to protect against your intermediary's death, disability, incapacity, judgments liens, etc. Furthermore, intermediaries should offer mechanisms and procedures designed to protect your transactions. It is also extremely important for an intermediary to employ proper custodial procedures for sale proceeds and other funds held in segregated, restricted accounts, through the use of a "Qualified Escrow" or a "Qualified Trust." The final rules for tax-deferred exchanges created a new category of accommodator or facilitator called a "Qualified Intermediary," and provided for certain tests which must be met in order to "qualify." In addition, these rules prescribe certain procedural requirements, which all Qualified Intermediaries must meet, together with prerequisite use of an exchange agreement containing express and specific language. As the Internal Revenue Service has vowed to pursue any taxpayers who use accommodators in deferred exchanges other than Qualified Intermediaries, exchangers should be extremely careful not to breach this requirement.

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