Touch the money — even for a moment — and the exchange is dead. The Qualified Intermediary exists for one purpose: to stand between you, the Exchangor, and every dollar that flows through your 1031 transaction.
You Cannot Control the Proceeds
The rule is absolute. If you receive or control the proceeds from the sale of your Relinquished Property you are disqualified from the Section 1031 Exchange. No partial credit, no grace period. The entire tax deferral collapses.
This is why the QI’s core function is to handle the money so that the Exchangor never touches it. The QI stands between you and the money.
The QI Is Not Your Agent
This point deserves its own section because it is routinely misunderstood. The Qualified Intermediary is an independent third party. THE QUALIFIED INTERMEDIARY IS NOT YOUR AGENT AND YOU SHOULD NOT TAKE LEGAL OR ANY OTHER ADVICE FROM HIM. The QI is paid by the Exchangor to ensure that everything regarding the Net Sales Proceeds is done in accordance with the rules of Section 1031 — and then to provide written proof of how it was done. That is the scope of the engagement. If you have legal questions about your exchange, get a lawyer. The QI is not that person.
What the QI Actually Does
The QI holds the money. When the Exchangor the Relinquished Property, the Net Sales Proceeds are transferred to the QI, not to the Exchangor. When the Exchangor is ready to close on the Replacement Property, the QI releases those funds directly to the Closer to complete the purchase.
The Risk You Cannot Ignore
The Qualified Intermediary could end up losing or stealing all of your money. This is not a theoretical concern. The industry has seen QI failures that left Exchangors with wiped-out proceeds and a completed tax event they could no longer defer. The instruction is direct — do not allow the QI to take possession of your funds in a way that leaves you without recourse. Choosing and monitoring your QI is not a formality; it is one of the highest-stakes decisions in the entire exchange.
Who Can Be the Exchangor
The Exchangor doesn’t have to be an individual. An LLC, a partnership, a corporation, or any business entity can be the Exchangor — provided the Replacement Property is taken in the same name that held the Relinquished Property. There is a narrow exception for a single-member LLC treated as a disregarded entity, but the underlying principle holds: the entity that sells is the entity that buys, and the QI holds the funds in between.