What is the Federation of Exchange Accommodators (FEA)?

For real estate investors planning to use a 1031 exchange to defer capital gains and depreciation recapture taxes, it’s vital to follow the rules closely to avoid disqualification of the transaction. The 1031 exchange is a potentially valuable deferral tool, so the IRS expects full and transparent compliance with the regulations. Prominent among the requirements are the following:

• The investor must exchange the relinquished property for a property or properties of the same or greater value. Also, the replacement property debt must match or exceed that carried on the relinquished asset.
• The investor must abide by the 45- and 180-day deadlines for identifying potential replacements and final acquisition.
• The investor must employ a Qualified Intermediary, also known as an Exchange Accommodator, to manage the transaction.
• The properties must be “like-kind” real estate assets. The IRS allows almost any property held for investment or used for business purposes to satisfy the like-kind requirement.

What is an Exchange Accommodator?

The Exchange Accommodator (or Qualified Intermediary) oversees the exchange process for the investor. The QI has several primary responsibilities:

1. Maintaining a separate account for the proceeds of the sale of the relinquished property until completing the exchange by transferring the proceeds to the seller of the replacement property. One of the basic requirements of a successful 1031 exchange is that the investor may not have access to these funds during the process, making the QI’s job crucial.
2. Receiving formal identification of replacement property options from the investor within the 45-day period specified.
3. Oversee the transaction, including the creation of 1099 forms.

What qualifications does the QI need?

The IRS has some specific disqualifications for a QI, including that the designated person may not be related to the investor or an employee, business partner, or agent. No one with a direct financial connection to the investor can serve as their QI. That means the investor can’t engage their attorney, accountant, or broker for this role.

However, the QI must be reliable, knowledgeable, and professional since their performance can make the difference between a successful or failed 1031 exchange. For that reason, many investors choose an intermediary who is a member of the Federation of Exchange Accommodators, or FEA.

How does the Federation of Exchange Accommodators provide value?

The FEA’s mission is to support, preserve, and advance Section 1031 Exchanges and the QI industry. Its activities include education for QI professionals and the public, as well as the development of uniform standards for the profession. The FEA also provides input to state and federal bodies considering legislation that could impact the 1031 exchange rules and practices.

Furthermore, the FEA offers continuing education for exchange accommodators and confers the designation of Certified Exchange Specialist (CES) to those professionals who satisfy the work experience criteria and pass an examination regarding 1031 exchange rules and procedures. The FEA created a CES Certification Council to develop education and examination programs and has offered these designations since 2003. The certification program seeks to develop nationally recognized standards for QI professionals, encourage professional development in the field, and provide service to investors by providing certification to assist them with confidently choosing a Qualified Intermediary to manage their exchange.