The QI File

Roles · not tax or legal advice

QI vs title company

The title company closes the sale. The qualified intermediary is the party the Treasury regulations use to keep you from being treated as receiving the cash. They can be affiliates. They can be the same legal entity on some files. They are still different jobs, different documents, and — if the QI fails — different recovery paths. This page is about those jobs. It is not a finding that a title-family QI is safer, and it is not a finding that an independent QI is not.

Two jobs at the same closing table

A title insurer, title agent, or closing attorney examines title, issues a policy or an opinion, collects the buyer’s funds, pays off liens, and records the deed. That work is escrow and title. It exists on sales that are not exchanges.

A qualified intermediary, under Treas. Reg. §1.1031(k)-1(g)(4), enters a written exchange agreement, is assigned the taxpayer’s rights in the sale and purchase contracts, and receives the net proceeds so the taxpayer is treated as not constructively receiving them. The QI need not take deed. The QI is not your tax advisor unless a separate engagement says so.

Who holds the money after the closing statement is cut isa custody question, not a title-policy question.

Disqualified persons — including some agents

Treas. Reg. §1.1031(k)-1(k) defines who cannot be a qualified intermediary. The taxpayer cannot. A related person generally cannot. An agent of the taxpayer cannot. A person who has acted as the taxpayer’s employee, attorney, accountant, investment banker or broker, or real-estate agent or broker within the two-year period ending on the date of the transfer of the relinquished property is treated as an agent of the taxpayer.

The same paragraph carves out performance of services for the taxpayer with respect to exchanges of property intended to qualify for nonrecognition under §1031, and — separately — routine financial, title insurance, escrow, or trust services for the taxpayer by a financial institution, title insurance company, or escrow company. That exception is why a title company is not automatically disqualified just because it issued a policy last year. It is also why “our closer will just hold the money” is not a QI analysis if that closer has been your deal lawyer or listing broker.

Ask, in writing: which services did this company (and the people on your file) provide to this taxpayer in the prior two years? Then let counsel apply (k). This page will not.

A title parent is not the account

Several directory firms sit under title underwriters or national title families. That is an ownership fact on the custody file. It does not mean exchange proceeds sit on the parent’s balance sheet, that the parent’s examiners review the QI book, or that two people must sign a wire. See the parent-logo section onsegregated vs dual-signatureand the pair pages undercompare listed QIs.

What to ask before you assign the contract

  • Legal name of the QI on the exchange agreement — not the title brand on the commitment.
  • Whether the title/escrow company provided more than routine title, escrow, or trust services to this taxpayer in the prior two years.
  • Where net proceeds go on the closing statement, and who the bank takes instruction from after that.
  • Whether a qualified escrow or trust is being used, or only a QI receipt.

FAQ

Can my title company also be my qualified intermediary?

Sometimes. Treas. Reg. §1.1031(k)-1(k) treats a person who has acted as the taxpayer’s employee, attorney, accountant, investment banker or broker, or real-estate agent or broker within the two-year period ending on the transfer of the relinquished property as an agent — and an agent is a disqualified person. The same paragraph excepts a person who has provided only routine financial, title insurance, escrow, or trust services for the taxpayer by a financial institution, title insurance company, or escrow company. Routine closing work is not automatically the same as being your exchange counsel. Ask the title company which services it provided to you in the prior two years.

Does using a title-family QI mean the title underwriter holds my exchange funds?

No. A parent logo is an ownership note. The exchange agreement names a QI entity. The bank signature card names who can wire. Those may not be the underwriter. See how to read a listing and segregated vs dual-signature.

Who should receive the net proceeds at closing?

If you are attempting a deferred exchange under the QI safe harbor, the net proceeds should be delivered as the exchange documents instruct — typically to the QI or to a qualified escrow/trust — not to the taxpayer. Title escrow on the sale is a closing mechanic. It is not a substitute for a written exchange agreement executed before you transfer the relinquished property.

Related

Sources

This page is not tax, legal, or investment advice. QI custody explainer, not a securities offering.