Independent Exchange Services,
Inc. acts as a third party Qualified Intermediary in an
exchange. As a principal in the transaction, IES acquires
the Phase I relinquished property from the Exchanger and
transfers the property to the buyer. IES receives the
cash amount of the equity from the buyer at close of escrow
and issues an Exchange Credit for that amount to the Exchanger.
Upon purchase of the Phase II replacement property, IES
again acts as the principal in the transaction, provides
cash to acquire the Phase II property and transfers the
property to the Exchanger.
IES cares about security. Standard documentation is straightforward
and clearly defines the role and responsibilities of IES
as a facilitator in helping the Exchanger to complete
a successful exchange. Funds are invested with the trust
department of a major commercial bank for safety and protection.
Special accounts requiring co-signors are available if
Requirements of Qualified Intermediary
Under Section 1031 of the Internal Revenue Code, the use of a "Qualified Intermediary" provides a "safe harbor" (presumption that the Section 1031 exchange is valid and will be allowed) for the taxpayer's exchange. The QI has to be a person who is truly "independent", and, to ensure financial security, should be a bonded and insured corporation that engages in no other business.
IES, as a QI, is treated as a "principal" in the transaction, and is deemed to be the "seller" of the taxpayer's old property (called the "Relinquished Property"); IES will receive the taxpayer's net equity (the "Exchange Proceeds") when the Relinquished Property is sold to the buyer.
And, when the taxpayer has identified and is ready to purchase the new property (called the "Replacement Property"), IES will be treated, for tax purposes, as the buyer and will deposit the Exchange Proceeds on behalf of the taxpayer to purchase the Replacement Property.
Although IES is treated as a 'principal' for tax purposes, IES does not take title to either property, does not negotiate the sale or purchase agreements, does not qualify for or obtain any financing, or otherwise get involved in the non-exchange aspects of either the sale of the Relinquished Property, or the purchase of the Replacement Property. With our Exchange Agreement and ancillary documents, and our receipt and disbursement of the Exchange Proceeds, the client's exchange process will (subject to the taxpayer meeting the time deadlines and subject to the Replacement Property satisfying other requirements), will satisfy the requirements of Section 1031 to achieve tax-deferral.
During the time IES holds the taxpayer's Exchange Proceeds, they are held in accounts at major commercial banks and/or trust companies. In addition, IES carries Errors & Omissions insurance, and a surety (fidelity) bond. For larger transactions, IES will establish other mechanics to provide additional security and comfort to the client (qualified trusts, dual-signature accounts, etc.).