Qualified Intermediary Role & Responsibilities Flashcards
6 cards from real CES practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Qualified Intermediary Role & Responsibilities flashcards as text
What happens to exchange funds if the QI becomes insolvent or goes bankrupt?
Answer: The taxpayer's exchange funds may be at risk unless properly protected in segregated or trust accounts
If a QI becomes insolvent, exchange funds held in co-mingled accounts may be at risk — segregated accounts, bonds, and insurance provide protection.
Which federal agency currently regulates Qualified Intermediaries at the national level?
Answer: No single federal agency — QIs are largely unregulated at the federal level
QIs are not federally licensed or regulated; oversight is primarily at the state level and through industry self-regulation.
What is a 'direct deeding' arrangement and why is it used in 1031 exchanges?
Answer: Property deeds transfer directly between buyer and seller without the QI taking title, while the QI handles funds and assignments
Direct deeding allows deeds to pass directly between parties while the QI uses assignment of contract rights to facilitate the exchange without taking title.
Why is it critical for the QI to be identified and engaged BEFORE the relinquished property is listed for sale?
Answer: To ensure the exchange agreement is in place before any binding obligation to transfer arises
The exchange agreement and assignment must be structured before the taxpayer enters a binding obligation to sell — ideally before or at listing.
Can a taxpayer instruct the QI to pay exchange-related expenses (e.g., closing costs) directly from exchange funds?
Answer: Yes, qualified exchange expenses can be paid from exchange funds without creating boot
Qualified exchange expenses such as closing costs and QI fees can be paid from exchange proceeds without being treated as taxable boot.
What should a CES professional advise a client who discovers their QI is using exchange funds for the QI's own business operations?
Answer: Immediately consult legal counsel, as this constitutes misuse of client funds and may jeopardize the exchange
Commingling or misuse of exchange funds by a QI is a serious breach and potential fraud — the client must seek immediate legal counsel.