Ask how the Qualified Intermediary controls exchange funds
Exchange funds can remain in the exchange structure for many weeks. The taxpayer needs clear information about the account and each funds transfer.
A federal tax safe harbor does not give a security guarantee. Ask the Qualified Intermediary to explain its actual controls in writing.
The written exchange agreement
The exchange agreement must limit the taxpayer's rights to receive, pledge, borrow, or use the exchange funds. These limits support the federal tax structure.
The agreement must also explain the permitted funds process. Review the agreement with your tax and legal advisors.
Questions to ask before you select a Qualified Intermediary
Ask each prospective Qualified Intermediary these questions:
- Which institution holds the exchange funds?
- What name appears on the account?
- Who can authorize a funds transfer?
- How do you confirm new wire instructions?
- Which insurance or bond applies to the service?
- Which person reviews account activity?
- How will I receive account and transaction records?
- What happens after a suspected fraud or security event?
Get the important answers in writing. Ask your attorney and financial advisor to review the answers.
Do federal tax rules require one specific bank structure?
The federal rules describe tax safe harbors and limits on the taxpayer's control. They do not approve one company security program.
Does a qualified escrow account remove all risk?
No. A tax safe harbor does not remove operational, bank, cyber, fraud, or counterparty risk.
Can the taxpayer control the exchange funds?
The written exchange agreement must limit the taxpayer's rights to receive, pledge, borrow, or use the funds before the permitted time.
Review the controls before you sign
Ask for the current written control information. Review the exchange agreement and funds process with your advisors.
This page gives general information. It does not give tax, legal, banking, cybersecurity, insurance, investment, or financial advice.