Can my attorney, CPA or real estate agent be my qualified intermediary?

The two-year window closes on your closing date and catches six job titles

Read the dates before the titles. The look-back period ends on the date you transfer the first of the relinquished properties, so a lawyer who last billed you 25 months before that date is outside it and a lawyer who billed you 23 months before it is not.

The regulation is not about who is currently engaged. It deems past service into present agency, which is why 'I fired my accountant last year' does not solve the problem.

Legal 1031 states the practical rule the same way: 'A Qualified Intermediary must remain completely independent and cannot have been your agent in the past 2 years.'

• Your employee, including a bookkeeper or property manager on your payroll
• Your attorney, on any matter other than section 1031 exchanges
• Your accountant, including the CPA who prepares the return that will carry Form 8824
• Your investment banker or broker
• Your real estate agent or broker, including the agent listing the property you are selling
• Anyone related to one of the above under §267(b) or §707(b) at the 10 percent threshold

Two carve-outs keep the specialists in business

The first carve-out, (k)(2)(i), ignores 'services for the taxpayer with respect to exchanges of property intended to qualify for nonrecognition of gain or loss under section 1031.' That is what allows the firm that handled your last exchange to handle this one; the regulation's own Example 1 says a person who acted only in that capacity 'would not have been a disqualified person.'

The second, (k)(2)(ii), ignores 'routine financial, title insurance, escrow, or trust services for the taxpayer by a financial institution, title insurance company, or escrow company.' Ordering a title commitment through a title company does not disqualify its exchange subsidiary.

Example 2 in the regulation builds that point out in full: an intermediary that is a wholly owned subsidiary of an escrow company that has performed routine escrow services for you, and that has served as your intermediary in prior exchanges, is not a disqualified person on either ground.

Relatives are tested at 10 percent, and in-laws are not in the family list

Paragraph (k)(3) pulls in anyone who bears a relationship to you described in §267(b) or §707(b), read with '10 percent' substituted for '50 percent' everywhere it appears. That is a much wider net than the ordinary related-party rules.

The family list it borrows is narrow and specific. Section 267(c)(4) says 'the family of an individual shall include only his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants.' A brother-in-law or a cousin is outside that list, though a company they own with you can still be caught by the corporate and partnership tests.

Paragraph (k)(4) extends the disqualification to anyone related, at that same 10 percent level, to a person who is disqualified under the agent test. A bank or a bank affiliate gets a narrow escape for transfers on or after January 17, 2001 where the only link is common control with an investment-banking or brokerage provider.

A law firm may own a slice of an intermediary: the regulation draws the line at 10 percent

This is the structure most attorneys propose, and the regulation answers it with a worked example rather than a principle. In Example 3, a corporation exists only to act as an intermediary, ten law firms each own 10 percent of its stock, one of those firms had given you legal advice within the two years, and that firm's managing partner is president of the intermediary.

The conclusion: the partner and his firm are disqualified persons, but the intermediary corporation is not, 'because neither J nor M own, directly or indirectly, more than 10 percent of the stock of C,' and the partner's role in managing the intermediary does not change that.

The lesson for a real transaction is that ownership percentages and prior engagements both have to be checked. Ask the intermediary, in writing, whether any owner above 10 percent has provided you with non-1031 services in the last two years.

If a disqualified person holds the money, the sale is a sale

The definition of qualified intermediary in (g)(4)(iii)(A) starts with the person not being you or a disqualified person, and the qualified escrow and qualified trust safe harbors in (g)(3)(ii)(A) and (g)(3)(iii)(A) start the same way. Fail the test and none of the four safe harbors is available.

Without a safe harbor you fall back to the general rules on receipt, and paragraph (f)(1) is blunt about the result: if you actually or constructively receive money in the full amount of the consideration for the relinquished property before you receive like-kind replacement property, 'the transaction will constitute a sale and not a deferred exchange,' even if you do end up buying the replacement.

Nothing after closing repairs that. Confirm the intermediary's status with your CPA or attorney before the file opens, and read what disqualifies a 1031 exchange for the other ways the safe harbor is lost.

What your own advisors should be doing instead

The people the regulation shuts out of the intermediary role are the people you most want advising you, and none of these jobs is restricted.

• Your attorney reviews the exchange agreement and the assignment, negotiates the cooperation clause, and confirms vesting against the same-taxpayer rules
• Your CPA fixes the adjusted basis and projected gain before you list, and prepares Form 8824 afterwards
• Your real estate agent can receive your written identification, because the regulation only bars sending it to yourself or a disqualified person; how do I properly identify replacement property covers who may receive it
• An intermediary that has only ever done exchange work for you may serve again, under the (k)(2)(i) exception
• The firm holding the money is chosen on its controls, not on friendship; see how do I choose a safe qualified intermediary