Colorado Passes Law to Regulate Qualified Intermediaries
On Thursday April 16th 2009, Colorado Governor Bill Ritter signed House Bill 09-1254 (HB 1254). This means that there are now strict requirements that anyone acting as a Qualified Intermediary (QI) must follow. The bill was put into place as consumer protection for taxpayers who choose to perform an IRC § 1031 tax-deferred exchange where either:
1. The taxpayer's relinquished property is located in
2. The exchange facilitator agrees to take title to
Qualified Intermediaries are now required to:
1. Notify taxpayers involved in current exchanges within two business days of certain changes in ownership of the QI.
2. Maintain adequate financial assurance and errors and omissions insurance or deposits by:
§ Maintaining a Fidelity Bond in the minimum amount of $1,000,000 and Errors and Omission insurance of a minimum $250,000; or
§ Depositing cash or maintaining irrevocable letters of credit in at least these amounts with a financial institution; or
§ Depositing all exchange funds in a qualified escrow or qualified trust account.
3. Have approval of BOTH the QI and the taxpayer in order to withdraw exchange funds of $250,000 or more from taxpayer's account.
4. Provide the taxpayer with written notification of the manner in which the taxpayer's exchange funds will be invested or deposited.
5. Avoid the commingling of exchange funds with a QI's operating account. Also, commingled exchange funds of multiple taxpayers must be traceable to each taxpayer.
Your Qualified Intermediary should handle your exchange funds with a sense of care and trust, offering financial strength, experience, and nationwide service, along with solid credentials in facilitating tax-deferred exchanges. You can be assured that First American Exchange Company fully supports this new law and is in compliance in all aspects.
"We applaud the Colorado Legislature for putting these consumer protections in place. There is nothing more important that ensuring our customers are confident in their decision to use First American Exchange Company. Our current standard procedures and company policies more than exceed what is now required by this law and we are always more than happy to review them with our customers," said Brenden Faber, CES®, President of First American Exchange Company, LLC.