Who Has Control of Your 1031 Money?
Security of 1031 Exchange Funds.
Whether the taxpayer is an individual or a business in a 1031 Exchange, the Tax Code requires taxpayers have no control of the proceeds from their sale until the replacement property is acquired. The monies are held by the taxpayer’s chosen 1031 Qualified Intermediary and then sent directly to the title/escrow company that is coordinating the closing of the new property. Therefore, the critical decisions for all taxpayers who are planning on deferring their taxes via a 1031 Exchange is which Qualified Intermediary to hire and how the Qualified Intermediary will be securing your funds.
1031 Intermediaries are not regulated by the federal government and most states. Practically any individual can establish a business acting as a 1031 Qualified Intermediary without testing or approval from any governmental entity. This means that in most states, there are no regulations or laws concerning how your 1031 Exchange funds are deposited, invested or secured by your Qualified Intermediary. During the “Great Recession” of 2007 to 2009, some taxpayers lost their exchange funds when their monies were either misappropriated or poorly invested by their chosen 1031 Intermediaries. In fact, recently a Qualified Intermediary lost taxpayers’ funds by investing their customers’ monies in cryptocurrencies! In many instances these losses could have been avoided by the taxpayer conducting basic due diligence prior to selecting their Qualified Intermediary.
- Financial Assurances for your funds: Since 1031 Intermediaries are not regulated by the Federal government or by most states, they are not required to provide insurance or other protections for your exchange funds. Therefore, if your funds are lost or misappropriated by a Qualified Intermediary that does not provide adequate protections, the loss is borne by you. Additionally, funds should only be held in highly rated US banks in segregated accounts and the Qualified Intermediary requires your signature for any disbursement.
- Safety and Security for the transfer of your funds: With cybercrime and wire fraud on the rise, bank wire transfers, particularly regarding real estate transactions, have been increasingly targeted and are amongst the costliest types of cybercrime today. Select a Qualified Intermediary that has a secure computer network and updates its safety precautions for holding and transferring funds as well as one that is financially secure.
- Reputation: Although Qualified Intermediaries are not regulated by the federal government, there is a highly respected industry trade association, the Federation of Exchange Accommodators (FEA). Check the FEA website to ensure that the Qualified Intermediaries that you may be considering are members.
- Expertise and Strength: Since Qualified Intermediaries are not regulated or tested, ask how long the Qualified Intermediary has been in business and the experience and training of their staff.
So How Do You Choose?
With so much at stake, it is well worth your time to do due diligence. Here are some additional questions to ask when choosing your Qualified Intermediary.
Safety and security of exchange funds is a matter of paramount importance. IPX1031 has the highest standards in the industry and routinely provides customers with the following superior safety and security controls for exchange funds:
- $100 million Fidelity Bond
- $50 million third party corporate performance guarantee
- $30 million in Errors & Omissions insurance
- Exchange funds are held in segregated accounts for the benefit of the named Exchanger, using the Exchanger’s taxpayer identification number
- Disbursement of exchange funds requires written authorization from the Exchanger
- Disbursements require dual authorization and are controlled by our separate Banking Division; sales and administrative staff have no authority or ability to transfer funds
- Regular reconciliation of exchange fund balances by our Banking staff and our parent company
- As part of a large publicly traded corporation, we are subject to audits, controls and a level of financial transparency about the entire organization that is not required of privately held businesses.
- To increase security as well as provide increased convenience to our exchange customers, we have chosen the use of an electronic platform (with enhanced authentication features) as the preferred delivery method for exchange documents
To discuss 1031 tax deferral strategy, please reach out to us. IPX1031 focuses solely on 1031 Tax Deferred Like Kind Exchanges. As the national leader in 1031 Exchange services, IPX1031 has the financial assurances, security, and expertise essentials to protect your funds and provide answers and guidance throughout the exchange process.
IPX1031. The best choice for your 1031.
IPX1031 is the largest and one of the oldest Qualified Intermediaries in the United States. As a wholly owned subsidiary of Fidelity National Financial (NYSE:FNF), a Fortune 300 company, IPX1031 provides industry leading security for your exchange funds as well as considerable expertise and experience in facilitating all types of 1031 Exchanges. Taxpayers’ funds are held in segregated accounts using the Exchanger’s taxpayer identification number. Our nationwide staff, which includes industry experts, veteran attorneys and accountants, are available to help you and your legal and tax advisors. For additional information regarding IPX1031 and how to choose the best QI for your upcoming transaction, please review:
1031 Due Diligence – Questions to ask a QI
Safety and Security for Exchangers
Are Cybercriminals Targeting Your 1031 Funds?
The Role of the Qualified Intermediary
Opportunities of the 1031 Exchange
Top 5 Challenges to Avoid in a 1031 Exchange