CES Qualified Intermediary Role & Responsibilities

Question 1

What is the primary role of a Qualified Intermediary (QI) in a 1031 exchange?

Accepted Answer

To hold exchange proceeds and facilitate the exchange to avoid actual or constructive receipt by the taxpayer

Answer

The QI holds the exchange proceeds and acts as the intermediary to ensure the taxpayer does not have actual or constructive receipt of the funds.

Question 2

Who is expressly disqualified from serving as a QI under Treasury Regulations?

Accepted Answer

The taxpayer's attorney who represented them in the last two years

Answer

Disqualified persons include the taxpayer's employee, attorney, accountant, investment banker, or real estate agent if they served the taxpayer within the two-year period preceding the exchange.

Question 3

What document does the QI use to acquire the rights to the relinquished property without taking title?

Accepted Answer

An assignment agreement

Answer

The QI uses an assignment of the taxpayer's rights under the sale contract to step into the exchange without taking title to the property.

Question 4

Where must the QI hold 1031 exchange proceeds?

Accepted Answer

In a segregated, separate account, trust, or escrow for each exchanger

Answer

Best practices and many state regulations require QIs to hold funds in separate, segregated accounts for each exchanger to protect client funds.

Question 5

What is 'constructive receipt' in the context of a 1031 exchange?

Accepted Answer

When the taxpayer has control over or the ability to access the exchange proceeds

Answer

Constructive receipt occurs when the taxpayer has the ability to control, pledge, or demand the exchange funds, which would disqualify the exchange.

CES - Certified Exchange Specialist Practice Test

CES - Certified Exchange Specialist Practice Test

CES Qualified Intermediary Role & Responsibilities