1031 Exchange QI Inquiry

[Michael Shawn]

Is it possible to provide qualified intermediary services, as well as other services, such as real estate brokerage, in the same transaction, if all provided services only pertained to a 1031 exchange?

Based on reading the regulations, it appears that two important paragraphs related to this question are as follow:

• 1. “Services for the taxpayer with respect to exchanges of property intended to qualify for nonrecognition of gain or loss under section 1031” doesn’t disqualify a real estate broker or agent from being a qualified intermediary.
• 2. Example 3: “C is a corporation that is only engaged in the trade or business of acting as a qualified intermediary to facilitate deferred exchanges. Each of 10 law firms owns 10 percent of the outstanding stock of C. One of the 10 law firms that owns 10 percent of C is M. J is the managing partner of M and is the president of C. J, in his capacity as a partner in M, has also rendered legal advice to B within the 2-year period on matters other than exchanges intended to qualify for nonrecognition of gain or loss under 1031. J and M are disqualified persons. C, however, is not a disqualified person because neither J nor M own, directly or indirectly, more than 10 percent of the stock of C. Similarly, J’s participation in the management of C does not make C a disqualified person.”

My interpretation of the above is that J and M are disqualified because they performed non-1031 related services within that 2-year period. In other words, if you own 10% or less of an entity acting as a qualified intermediary to facilitate deferred exchanges, and own 100% of the brokerage entity you could provide both QI and Brokerage services to the same client in the same transaction, as long as you have only provided 1031 exchange related services to the client during a 2-year period. 

Thanks for any insight.