Persons or entities that are agents of the Taxpayer at the time of the transaction are disqualified from acting as a Qualified Intermediary (QI). § 1.1031(k)-1(k). Disqualified persons also include those bearing a relationship to the Taxpayer or an agent of the Taxpayer, as described in either § 267(b) or § 707(b) of the Internal Revenue Code, and as determined by substituting 10% for 50% each place it appears in those sections.
Persons who have acted as the Taxpayer's employee, attorney, accountant, investment banker or broker, or real estate agent or broker within the two-year period ending on the date of transfer of the first of the relinquished properties are treated as agents of the Taxpayer at the time of the transaction. These persons are disqualified because they are presumed to be under the Taxpayer's control.
There are exceptions to this rule. There is no disqualification for the following:
- Persons who rendered services for the Taxpayer solely with respect to § 1031 exchanges; or
- The providing of routine financial, title insurance, escrow, or trust services for the Taxpayer by a financial institution, title insurance company, or escrow company. This definition was recently expanded to include bank affiliates. T.D. 8982.
Please note: an exchange can be jeopardized if a disqualified person handles exchange funds at closing.