Know Your Qualified Intermediary - 1031 Exchanges

News of two exchange companies mishandling client 1031 funds has been in the news recently and has caused concern among users of the popular tax deferral strategy. The negative actions of a few are overshadowing the success and responsible approach of the many. It is important to note that 1031 Exchanges have been around for over 85 years and were intentionally established by the IRS with clear guidelines allowing taxpayers to defer gain on their investments.

Although not representative of the industry as a whole, these cases do highlight the importance of researching the company you choose to process your 1031 Exchange. As with any important decision, know whom you are choosing to do business with. Some questions to ask when researching a potential 1031 company:

Will my money be held with a large bank with online viewing of my funds
Is the money in a segregated account or mingled with other funds
Do disbursements of exchange proceeds require more than one signature
Are you bonded and insured to cover both intentional and unintentional wrongdoing
What is your experience with 1031 Exchanges and the tax code
How long has your company been in business

While not a comprehensive list, questions like these will help you know the company you will be working with and trusting to process your exchange in accordance to IRS guidelines and ethical business standards.