How to Choose a Qualified Intermediary for Your 1031 Exchange: The Selection Framework

What a Qualified Intermediary Does

The Qualified Intermediary (QI), also called an “exchange accommodator” or “facilitator,” is the third-party entity that holds the proceeds of the relinquished property sale until the replacement property closing. The QI’s role is governed by the safe harbor rules of Treas. Reg. §1.1031(k)‑1(g)(4). Without a properly engaged QI, the seller has constructive receipt of the sale proceeds, which voids the exchange and triggers immediate tax recognition on the relinquished sale.

The QI’s specific functions:

• Receive the wire from the closing of the relinquished property directly (the seller never touches the proceeds)
• Hold the proceeds in a segregated qualified escrow or qualified trust account during the 45/180-day window
• Receive the signed identification letter from the seller before the 45-day deadline
• Wire the proceeds to the closing of the replacement property when called for by the closing instructions
• Issue the closing summary documenting realized gain, recognized gain (if any boot), and deferred gain for the seller’s CPA to use in Form 8824

This page is a deeper-dive companion to the investment grade 1031 exchange pillar guide and the CPA’s Guide to Investment Grade 1031 Exchanges.

Who Cannot Be a QI: The Disqualified Persons Rule

Treas. Reg. §1.1031(k)‑1(k) defines a “disqualified person” who cannot serve as the taxpayer’s QI. The list excludes anyone who has acted in any of the following capacities for the taxpayer within the previous two years:

• The taxpayer’s employee
• The taxpayer’s attorney
• The taxpayer’s accountant or CPA
• The taxpayer’s investment banker
• The taxpayer’s real estate broker or agent
• An entity in which the taxpayer owns more than 10% (directly or indirectly)
• An entity that owns more than 10% of the taxpayer (directly or indirectly)

The two-year lookback is strict. A CPA who has prepared the taxpayer’s tax returns for any of the past two tax years cannot serve as QI for that taxpayer’s 1031. A real estate broker who represented the taxpayer on any transaction in the past two years cannot serve as QI. The disqualified persons rule is absolute, not waivable, and not curable by disclosure.

The professional service exception is narrow: the disqualified persons rule does not exclude services as a “qualified intermediary” itself, services in connection with the exchange, or services in routine financial transactions. So a QI who has been the taxpayer’s QI on prior 1031 exchanges is still eligible. The exclusions are about other professional roles (CPA, attorney, broker) that create independence concerns.

The Five Non-Negotiable Selection Criteria

1. Segregated qualified escrow or qualified trust accounts. The QI must hold the taxpayer’s funds in a separate account, not commingled with the QI’s operating accounts or other clients’ funds. Treas. Reg. §1.1031(k)‑1(g)(3) safe harbor describes acceptable arrangements: a “qualified escrow account” administered by a person other than the taxpayer or a disqualified person, or a “qualified trust account” with similar independence. The defensive standard is one bank account per exchange, in the taxpayer’s name (or with the taxpayer named as beneficiary), held at an FDIC-insured depository institution. Commingled “pooled” accounts are an immediate disqualifier.

2. Errors and omissions insurance. The QI should carry E&O insurance with coverage in the seven-figure range or higher. This protects against operational errors (wire to the wrong account, late identification handling, calculation mistakes) that could cost the taxpayer the exchange. Ask for proof of coverage in writing.

3. Fidelity bond. A fidelity bond covers losses from employee dishonesty (embezzlement, fraud, theft). The bond should cover the maximum aggregate dollar value the QI typically holds. Ask for the bond amount in writing. A QI without a fidelity bond is one rogue employee away from the taxpayer’s complete loss of funds.

4. Bank quality and FDIC custody. Funds should be held at FDIC-insured U.S. depository institutions. Some QIs invest exchange proceeds in money market funds or short-term Treasuries to capture yield. This is acceptable if the underlying instruments are conservative and the QI’s exchange agreement explicitly addresses the investment policy. Funds held at non-FDIC-insured institutions, in foreign banks, or in any speculative instrument are a red flag.

5. State licensing or registration where required. Certain states regulate QIs directly:

For taxpayers in any of these states, verify that the chosen QI is in good standing with the relevant state regulator. For taxpayers in unregulated states, the federal safe harbor rules and the QI’s voluntary insurance/bonding are the only protections.

The Red Flags That Should End the Conversation

Several QI characteristics are immediate disqualifiers:

• Commingled “pooled” accounts instead of segregated qualified escrow.
• No errors and omissions insurance or insurance below seven figures.
• No fidelity bond or a bond materially smaller than typical exchange size.
• Funds held at non-FDIC-insured institutions or in unusual investment vehicles.
• Recent bankruptcy filings, regulatory enforcement actions, or major lawsuits against the QI or its principals.
• Lack of state registration in states that require it.
• Vague or evasive answers to questions about custody, insurance, or operating procedures.
• Pressure to engage immediately without time to perform basic diligence.
• Less than five years of operating history or fewer than 100 completed exchanges.
• Refusal to provide proof of insurance, bonding, or licensing upon request.

The History of QI Failures

The QI industry has had multiple high-profile failures over the past two decades. The 2008 collapse of LandAmerica 1031 Exchange Services, the bankruptcy of Edward H. Okun’s 1031 Tax Group (which led to a federal fraud conviction and Okun’s 100-year prison sentence), the failures of Stewart Title’s 1031 Affiliate, and several smaller QIs that commingled or misappropriated funds collectively cost investors hundreds of millions of dollars. In each case, investors believed their proceeds were safely held, only to discover at the replacement closing that the funds were gone.

The lessons from those failures are direct: segregated accounts, FDIC custody, insurance, bonding, and operational transparency are not optional. Taxpayers and CPAs who treat QI selection as a commodity decision invite the same outcomes that destroyed prior generations of 1031 buyers.

Institutional QI Options

Several QI firms have multi-decade track records, institutional-quality custody, and the operational infrastructure to handle complex exchanges. The list below is not exhaustive and is provided as a starting point for diligence, not a recommendation:

• Asset Preservation, Inc. (API), National presence; subsidiary of Stewart Information Services Corp. (NYSE: STC); decades of operating history.
• Investment Property Exchange Services (IPX1031), Subsidiary of Fidelity National Financial (NYSE: FNF); among the largest QIs nationally.
• First American Exchange Company, Subsidiary of First American Financial (NYSE: FAF); national presence, institutional-grade custody.
• JTC Americas (formerly JTC NES Financial), Privately held; specializes in complex exchanges including reverse and improvement structures.
• Exeter 1031 Exchange Services, Independent national QI with strong west-coast presence.
• Accruit, Independent QI specializing in technology-enabled exchange administration.
• 1031 Corp, Independent QI with extensive operating history.

For each, conduct independent diligence on insurance limits, bonding, account structure, state licensing, and operating history. The QI should be able to deliver answers in writing within one business day. Hesitation or vague answers should end the conversation.

The Pre-Engagement Checklist

Before signing the QI’s exchange agreement, the taxpayer (in coordination with the CPA) should confirm in writing:

1. The QI is not a “disqualified person” with respect to the taxpayer (no role as employee, attorney, accountant, broker, or investment banker within the previous two years).
2. Funds will be held in a segregated qualified escrow or qualified trust account, not a commingled pool.
3. The depository institution is FDIC-insured.
4. The QI carries E&O insurance with coverage of at least $5M (or higher for transactions over $5M).
5. The QI carries a fidelity bond covering employee dishonesty at appropriate aggregate limits.
6. The QI is registered or licensed in the relevant state if state law requires.
7. The QI has at least five years of operating history and a verifiable track record.
8. The exchange agreement specifies the investment policy for held funds (FDIC custody, money market, or other).
9. The QI’s pricing is disclosed in writing (typical delayed exchange: $1,000 to $2,500; reverse or improvement: $7,500 to $30,000+).
10. The QI is not engaged with any party adverse to the taxpayer in the same transaction.

Engagement Timing

The QI must be engaged before the relinquished property closes. Once the taxpayer has constructive receipt of the proceeds, the exchange is voided. Practical timing:

• Two to four weeks before the relinquished closing: identify candidate QIs, request diligence package (insurance, bonding, licensing, sample exchange agreement, fee schedule).
• One to two weeks before closing: select the QI, sign the exchange agreement, transmit the agreement to the closing attorney.
• Day of relinquished closing: closing attorney wires proceeds directly to the QI’s segregated account. The taxpayer never touches the funds.

QIs engaged on the day of closing or after closing has begun are working under time pressure that increases error rates. Earlier engagement always produces better outcomes.

For Owners Considering a Sale: Pre-Listing Coordination

Investment Grade Income Property, LP represents investors on both acquisitions and dispositions of investment grade NNN nationally. Through Broker of Record co-listing partnerships in all 50 states, we list properties on behalf of sellers, source qualified 1031 capital, and represent owners across the full lifecycle of a transaction.

For owners contemplating a sale, the most valuable conversation happens before the listing agreement is signed. We model the disposition scenarios on your specific property, project the after-tax proceeds under each path, and (where a 1031 is the right answer) coordinate with one of several institutional QIs we work with regularly. We do not act as QI ourselves (the disqualified persons rule prevents the buyer’s broker from also serving as QI), but we maintain working relationships with the leading institutional QIs and can provide structured introductions, fee comparisons, and operational coordination across the full exchange timeline.

Where a sale is the path forward and the owner plans a 1031, we represent on both legs of the exchange under one coordinated engagement: listing the relinquished property and sourcing the replacement property. There is no fee for the initial scenario analysis. See contact Investment Grade.

Frequently Asked Questions: Qualified Intermediary Selection

Related 1031 Resources

• Investment Grade 1031 Exchange: The Complete 2026 Guide
• The 1031 Exchange 45-Day Rule
• The 1031 Exchange 180-Day Rule
• The Three 1031 Identification Rules Compared
• Boot in a 1031 Exchange Explained
• The CPA’s Guide to Investment Grade 1031 Exchanges
• 1031 Exchange Deadline Calculator
• Contact Investment Grade: Acquisitions and Dispositions

This page is a comprehensive educational reference and is not legal, tax, or investment advice. The 1031 exchange has strict procedural requirements, and execution should always involve a qualified intermediary, a CPA, and where applicable, a tax attorney. Investment Grade Income Property, LP represents real estate investors on both acquisitions and dispositions and is not a tax advisor, qualified intermediary, or law firm. The QI firms named in this page are listed for diligence-starting-point purposes only and are not endorsements; investors should perform independent diligence on any QI before engagement.