How to choose a qualified intermediary

There is no federal QI license

IRC §1031 and Treas. Reg. §1.1031(k)-1 describe when an intermediary is a “qualified intermediary” for the deferred-exchange safe harbor (see especially §1.1031(k)-1(g)(4)). That is a tax-characterization rule. It is not a federal charter, exam, or bonding program. The IRS does not publish a national roster of licensed QIs.

A handful of states impose facilitator statutes — bonding, escrow, dual-authorization, or in some cases a license. Those are state consumer-protection or licensing statutes, not a national license. See the state QI bonding and registration overview. If a firm says it is “licensed,” ask: licensed by whom, under what statute, and for which activity. If the answer is “we are a QI,” that is not a license.

Account titling

Ask for the exact account title that will appear on the bank or trust statement for your exchange, and ask for a specimen or redacted example. You are looking for a match between (1) the exchange agreement, (2) the qualified-escrow / qualified-trust / separately identified account language in Treas. Reg. §1.1031(k)-1(g)(3) if that structure is used, and (3) the name and tax identification on the account.

Washington’s facilitator statute, for example, requires exchange funds to be deposited in a separately identified account, using the taxpayer’s taxpayer identification number, with the taxpayer as a named beneficiary (RCW 19.310.040). That is Washington law for covered facilitators — not a national titling rule. Other states use “qualified escrow or qualified trust” language drawn from the Treasury regulation. Do not assume one state’s title format applies everywhere. Ask what title this file will use.

Segregation versus commingled operating funds

Segregation answers: are the exchange proceeds held in an account identified to the taxpayer (or in a qualified escrow/trust), or do they sit in an operating or omnibus account the QI uses for its own business? Several state facilitator statutes forbid commingling exchange funds with the facilitator’s operating account. California Financial Code §51009, for example, says a facilitator shall not commingle exchange funds with operating accounts and shall not loan or transfer exchange funds to affiliates except as needed for an exchange accommodation titleholder. Colorado’s §6-1-721 similarly forbids commingling with operating accounts while allowing aggregation of exchange funds with subaccounting that tracks each client.

Aggregation with proper subaccounting is not the same sentence as “we never touch a pooled account.” Ask which model this firm uses, how subledgers are maintained, and whether the bank statement you can receive shows your file or only a pool. A longer treatment is on segregated funds vs dual-signature controls.

Dual-signature and who can wire

Dual written authorization means a disbursement from the exchange account requires written direction from more than one party — typically the taxpayer and the QI, or the taxpayer and an independent escrow/trustee. Treas. Reg. §1.1031(k)-1(g)(6) restricts the taxpayer’s ability to receive, pledge, borrow, or otherwise obtain the benefits of money or other property before the end of the exchange period; the practical counterpart is: who at the QI can initiate a wire, and what second signature stops a single rogue instruction.

Ask, in writing: who are the authorized signers on the account; can a single QI employee release funds; does the bank require dual authorization above a stated amount; and will you receive account statements. Colorado’s statute, for example, requires dual authorization on transfers over $250,000 when that statute applies. Other states use dual written authorization as one of several statutory alternatives to a large fidelity bond. Those dollar thresholds are statute-specific. Do not treat a Colorado number as a national rule. See the custody-mechanics guide.

Fidelity and E&O — only as disclosed

Fidelity coverage (employee dishonesty / crime) and errors-and-omissions (professional liability) are different products. State facilitator statutes often require one, the other, or a cash/letter-of-credit substitute, or they allow a qualified-escrow structure instead of a bond. Published marketing pages sometimes state a limit. Those figures go stale. Named insureds, deductibles, exclusions for social-engineering wires, and whether the policy is a true fidelity bond versus a commercial crime policy are not things a directory should invent.

The QI File records insurance only when a firm’s own current page is cited, and even then the file says “as disclosed.” Ask the QI for a current certificate and for the statutory alternative it is using in your state, if any. Do not accept a parent-company logo as proof that your exchange account is an insured, dual-control, segregated account. That is the point of the parent-logo section on the custody page.

FEA membership is not a government charter

The Federation of Exchange Accommodators (FEA) describes itself as the only national trade association for the 1031 industry (1031.org/about-fea, accessed 2026-09-05). It publishes a member directory (“Find a Professional”), an ethics and performance-standards program, and the Certified Exchange Specialist (CES) designation. Those are association facts. They are useful questions: Is the firm a current FEA member? Does a named person who will work your file hold CES? Verify on FEA’s site, not from a brochure screenshot.

Membership does not mean the federal government chartered the firm. It does not replace account-titling, wire-control, or state-statute questions. How The QI File treats FEA and CES in the directory is on How to read a custody file.

Reverse, improvement, and DST — questions, not badges

A delayed (“forward”) exchange is the Treasury default story: sell, identify within 45 days, close replacement within 180 days or the due date of the return including extensions (IRC §1031(a)(3); Treas. Reg. §1.1031(k)-1). Reverse and “parking” exchanges are a different operational stack: an exchange accommodation titleholder holds parking-arrangement property under Rev. Proc. 2000-37, as limited by Rev. Proc. 2004-51. Improvement or construction exchanges add draw control, construction contracts, and often a parking entity. Definitions and failure modes are on Forward vs reverse vs improvement.

DST (Delaware statutory trust) interests offered as replacement property are typically securities offerings. A QI that “does DSTs” may be referring to exchange administration into a third-party offering, to an affiliate sponsor, or only to educational copy. Those are not the same as QI custody. Read QI custody vs DST offerings before you collapse the two. The firm directory can be filtered to firms that publish reverse or improvement language. “Publishes” is not “we audited their last reverse.”

Fees and who keeps float interest

Ask for the fee schedule that will apply to your file: exchange fee, wire fees, overnight fees, extra-property or extra-relinquished fees, construction-draw fees, EAT/setup fees on a reverse. Then ask a separate question: who is entitled to interest earned on exchange funds, and is any portion credited to the taxpayer. Some firms publish that they retain float; some credit a stated rate; many do not say on the public site. The QI File does not invent those numbers. If it is not in the exchange agreement or a dated fee sheet, it is unknown.

Short checklist (print or paste into diligence notes)

• No federal license exists — what state statute, if any, applies to this file?
• Exact account title and TIN on the statement; specimen provided?
• Segregated / qualified escrow or trust / pooled-with-subledger — which, in writing?
• Who can initiate a wire? Is dual written authorization required? At what amount?
• Current fidelity and E&O certificates (or statutory cash/LOC/escrow alternative) — not a brochure number.
• FEA member this year? Named CES on the file? Verified on 1031.org?
• Will they document reverse (2000-37 / 2004-51), improvement, or DST administration — and in which documents?
• Fee schedule and who keeps interest on the exchange account?

Related

• Forward vs reverse vs improvement
• State bonding and registration
• Segregated funds vs dual-signature
• QI custody vs DST offerings
• How to read a listing
• Firm directory