CES Qualified Intermediary Role & Responsibilities 2

Question 1

Which of the following is a key due diligence step an exchanger should take when selecting a QI?

Accepted Answer

Verify the QI carries fidelity bond and errors & omissions insurance

Answer

A prudent exchanger should verify that the QI carries fidelity bond coverage and E&O insurance to protect against fraud or errors.

Question 2

The QI's exchange agreement must be in place before what event to properly structure the exchange?

Accepted Answer

Before the taxpayer closes on the relinquished property

Answer

The exchange agreement must be executed before the closing of the relinquished property to prevent constructive receipt of the proceeds.

Question 3

Can a QI provide legal or tax advice to the taxpayer as part of their exchange services?

Accepted Answer

No, QIs should refer taxpayers to their own independent legal and tax advisors

Answer

QIs are not tax or legal advisors; they should always refer taxpayers to independent qualified professionals for tax and legal guidance.

Question 4

In a simultaneous exchange, how does the QI coordinate the transfer of funds and deeds?

Accepted Answer

The QI coordinates closing so that the relinquished and replacement property transfers happen on the same day

Answer

In a simultaneous exchange, the QI coordinates closings so both the relinquished and replacement properties transfer on the same day.

Question 5

What is the significance of the 'safe harbor' provisions in the Treasury Regulations for QIs?

Accepted Answer

They allow the taxpayer to use a QI without triggering constructive receipt, as long as specific conditions are met

Answer

The safe harbor provisions under Treas. Reg. §1.1031(k)-1 establish conditions under which using a QI does not result in constructive receipt by the taxpayer.

CES - Certified Exchange Specialist Practice Test

CES - Certified Exchange Specialist Practice Test

CES Qualified Intermediary Role & Responsibilities 2