Can I FIRE my QI...?

Recently, there has been a spate of high-profile Qualified Intermediaries, or 'QIs,' facing financial problems, including bankruptcies, lawsuits and possible federal actions.

As a result, other QIs who are reputable and have safeguards in place to protect client funds (like 1031 Exchange Experts) have been receiving calls from clients of other QIs seeking to move their funds and switch 1031 exchange companies.

So, the question arises . . . can you do this legally? Unfortunately, the answer is probably not. But keep reading; maybe you can....

First, there is no provision in the Tax Code or Regulations for switching QIs mid-stream. Going outside the rules is risky in any exchange. Second, and perhaps more important, there are strong arguments that if you (The Exchanger) direct your first QI to send your funds to a second QI, this constitutes you exercising "control" over your proceeds . . . and this is fatal to your 1031 exchange.

On the other hand, Reverse 1031 Exchanges (where you buy your New Property before selling your Old Property) are governed by different rules, and in many cases you CAN switch QIs. As you may be aware, in a Reverse Exchange, your QI holds your New Property on your behalf because you can't hold title to both your Old and New Properties at the same time. Therefore, it is possible to switch QIs in these cases by simply transferring title (or membership interest in the holding company for the property) to the new QI.

If you'd like to learn more about these issues, feel free to call us.
The bottom line is due diligence! Make sure you perform a thorough investigation of who you use as your QI BEFORE you start a 1031 exchange. Ensure that your money and property are well protected.

--The Experts

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