THE QUALIFIED INTERMEDIARY ROLE

A qualified intermediary is required under the safe harbor rules in the Treasury Regulations because a taxpayer who directly receives sale proceeds from the relinquished property is treated as being in actual or constructive receipt of those funds, which disqualifies the exchange. For an investor in Boston, MA, using a qualified intermediary to receive and hold the funds outside the taxpayer's control is what allows the delayed exchange structure to satisfy federal tax requirements.

Generally not, if that attorney has represented the taxpayer in a legal capacity within the two years before the exchange, because the Treasury Regulations disqualify an attorney, accountant, or other agent who has acted for the taxpayer in that period. Most investors in Boston, MA instead engage a separate, dedicated qualified intermediary company that has no prior agency relationship with the taxpayer.

Massachusetts does not maintain a state-specific licensing or bonding requirement for qualified intermediaries, unlike some other states that have adopted such statutes. Because of this, investors in Boston, MA generally need to perform their own due diligence on a prospective qualified intermediary, including confirming how funds are held, whether a fidelity bond and errors and omissions insurance are in place, and whether exchange funds are held in a segregated qualified escrow or qualified trust account.

Exchange funds are typically held in a qualified escrow account or qualified trust account structured so the taxpayer cannot demand release of the funds except in narrow circumstances defined by the exchange agreement, such as after the forty-five-day identification period ends without a valid identification, or after the one hundred eighty-day exchange period closes. The taxpayer generally directs how and when funds are released toward a replacement property purchase, but does not have direct access to the account.

Yes. In a reverse exchange, an affiliated exchange accommodation titleholder, working alongside the qualified intermediary, may take and hold title to either the replacement property or the relinquished property under the safe harbor established in Revenue Procedure 2000-37, since one leg of the transaction has to close before the other in a reverse structure. This is a more involved role than the intermediary plays in a standard delayed exchange.