Qualified intermediary Accommodator

Overview

A qualified intermediary (QI) or accommodator is a person or business who enters into a written exchange agreement with a taxpayer to:

• Acquire and transfer property given up, and
• Acquire replacement property and transfer it to the taxpayer

This process facilitates an IRC section 1031 deferred like-kind exchange.

Withholding requirements

In a deferred like-kind exchange, the QI is required to:

• Withhold
  • It is the QI’s obligation to withhold and not the obligation of the real estate escrow person (REEP)
• Remit the withholding, and the accompanying withholding forms

Unless the seller or transferor qualifies for an exemption.

When a QI is not required to withhold

A QI is not required to withhold when the seller or transferor meets at least one of the following exemptions:

1. They complete and sign (certify) any of the full exemptions, check boxes 1-9 on Part III on Real Estate Withholding Tax Statement (Form 593)
   • Withholding is not required, even if there is boot in excess of $1,500, or if the exchange fails, does not occur, or does not meet the IRC section 1031 requirements
2. They certify that the transaction is a deferred exchange on Part IV, check box 10 on Form 593.
   • Withholding is required if there is boot in excess of $1,500, or if the exchange fails, does not occur, or does not meet the IRC section 1031 requirements
3. They are a corporation or partnership with a permanent place of business in California
   • Withholding is not required, even if there is boot in excess of $1,500, or if the exchange fails, does not occur, or does not meet the IRC section 1031 requirements
   • Note: If they claim to be exempt, but they really aren’t, the QI may be subject to penalties

Methods for withholding in the case of boot

Boot is non-like-kind property received in an exchange.

It can include:

• Cash
• Property
• Liability

A QI must use one of the following methods to withhold if the transferor has boot in excess of $1,500, and no other exemption applies:

• Boot in excess of $1,500
  • Withhold 3 1/3% (0.0333) of the boot in excess of $1,500
• Alternative Withholding Calculation Method
  • Use this method if the transferor elects to calculate withholding based on the certified amount of gain on sale completed on Form 593, Part VI. This election also requires the transferor to provide the QI with a certified Form 593.

Methods for withholding in the case of a failed exchange

If the like-kind exchange fails and no other exemption applies, the QI must use one of the following methods to withhold:

• Total Sales Price
  • Withhold 3 1/3% (0.0333) of the total sales price
• Alternative Withholding Calculation Method
  • Use this method if the transferor elects to calculate withholding based on the certified amount of gain on sale completed on Form 593, Part VI. This election also requires the transferor to provide the QI with a certified Form 593

Withholding penalty

In a deferred like-kind exchange, a QI:

• Has a withholding obligation
• Is subject to penalties if they fail to withhold
• Must withhold when boot paid is in excess of $1,500
• Must withhold if the exchange fails, does not occur, or does not meet the IRC section 1031 requirements

Any QI who fails to withhold is liable for the greater of:

• $500
• 10% of the required withholding

If the failure to withhold is shown to be due to reasonable cause, we will abate the penalty

Fund shortage requirements

Effective January 1, 2022, a Qualified Intermediary’s (QI) withholding obligation will be limited to available funds in those situations where the QI does not receive sufficient funds from escrow, or the QI disbursed funds for the purpose of completing an exchange under Internal Revenue Code section 1031.

If a QI does not receive sufficient funds from escrow to pay the withholding (cash-poor exchange), the QI may provide supporting documentation for this transaction and attach it to Form 593. The QI must also enter the amount that should have been withheld on Real Estate Withholding Statement (Form 593), line 34, and certify this is a cash poor transaction by checking the appropriate box and sign on Side 3 of Form 593.