Disqualified Parties – Capital 1031 Exchange Company
The Treasury Regulations provide that certain persons/entities are disqualified from acting as a Qualified Intermediary (“QI”). Disqualified persons include anyone who can be considered the taxpayer’s agent, anyone who is a related person as defined by the Code, or anyone who has acted as the taxpayer’s employee, attorney, accountant, investment banker, real estate agent or broker within the previous two years.
U nder the IRC §1031, an exchange may fail if the taxpayer has “actual or constructive receipt” of the exchange proceeds or any other property. A taxpayer is in actual receipt of money or property at the time the taxpayer actually receives the money or property or receives the economic benefit of the money or property. The taxpayer is in constructive receipt of money or property at the time the money or property is credited to the taxpayer’s account, set apart for the taxpayer, or otherwise made available so that the taxpayer may draw upon it if notice of intention to draw is given.
Therefore, if the taxpayer uses someone considered to be their agent to perform the §1031 exchange, the IRS may determine that the taxpayer was in “actual or constructive receipt” of the exchange proceeds, which would then disqualify the exchange.
For this reason, it is essential for the taxpayer to retain the services of a QI like Capital 1031 Exchange Company. Capital 1031’s role is to remain a completely independent party to the exchange transaction, thereby ensuring that the taxpayer is never in “actual or constructive receipt” of any of the exchange proceeds. Additionally, by retaining Capital 1031, the taxpayer will satisfy one of the “safe harbor” requirements under the Treasury Regulations.