A qualified intermediary who acted as your attorney, accountant, real estate agent or broker, investment banker or broker, or employee within the two years before you transfer the relinquished property is a disqualified person under Treas. Reg. 1.1031(k)-1(k). The consequence is structural: hiring one removes the safe harbor that lets sale proceeds sit outside your control while the exchange runs. The disqualified person test for a 1031 exchange qualified intermediary is a threshold question, and it gets answered before the exchange agreement is signed, because nothing cures it afterward.
Why the disqualified person rule decides whether the safe harbor holds
The deferred exchange rests on a single premise: the taxpayer never takes actual or constructive receipt of the sale proceeds. Treas. Reg. 1.1031(k)-1 supplies safe harbors that let a third party hold the money without treating the taxpayer as having received it — among them the qualified escrow account or qualified trust, and the qualified intermediary. Each of those roles turns on the same definition in paragraph (k): the person holding it cannot be a disqualified person.
If the firm serving as your QI was your agent in one of the listed ways during the look-back window, that safe harbor is unavailable. The exchange is not automatically taxable on that fact alone, but the protection the regulation was built to provide is gone, and the constructive receipt question returns to your specific facts.
What paragraph (k) actually covers
The regulation reaches a candidate three separate ways.
Agent status. A person who has acted as the taxpayer's employee, attorney, accountant, investment banker or broker, or real estate agent or broker within the two-year period ending on the date of transfer of the first of the relinquished properties is treated as an agent of the taxpayer at the time of the transaction.
A relationship to the taxpayer. A person who bears a relationship to you described in IRC 267(b) or 707(b) is disqualified — and the regulation tightens those sections by substituting 10 percent for 50 percent each place the percentage appears. This path is independent of agent status. No prior services are required for it to apply.
A relationship to your agent. The same 267(b)/707(b) test, with the same 10 percent substitution, applied between the candidate and a person who is your agent under the first path. For transfers made on or after January 17, 2001, a bank is not a disqualified person merely because an investment banking or brokerage firm in its controlled group provided services to the exchange customer within the two-year window.
Two categories of service are not taken into account: work performed for the taxpayer with respect to section 1031 exchanges, and routine financial, title insurance, escrow, or trust services provided to the taxpayer by a financial institution, title insurance company, or escrow company.
What the check requires
- A list of everyone who provided you attorney, accounting, real estate brokerage, investment banking or brokerage, or employment services in the past 24 months
- The names of relatives and of entities in which you hold an ownership interest, since 267(b) and 707(b) apply at a 10 percent threshold here rather than 50 percent
- The proposed exchange agreement, in hand, before signature
- A written description from the candidate of any prior work for you, rather than a verbal assurance
Working through it
Step 1: Map the two-year service history
Write down every attorney, CPA, real estate agent, investment banker or broker-dealer representative, and anyone on your payroll during the 24 months ending on the date the first relinquished property is expected to transfer. The regulation uses that endpoint specifically, so the window is fixed rather than approximate.
Cross-reference the list against the person or firm under consideration as qualified intermediary. If your CPA's firm also operates a QI division and prepared your return inside the window, the firm is captured even if the individual signing the exchange agreement never touched the return. The regulation looks at the relationship, not the org chart.
A common miss: checking only the individual named on the exchange agreement.
Step 2: Test the relationship, not just the services
This is where the analysis is most often misstated. A person related to you under 267(b) (a spouse, sibling, ancestor, lineal descendant, or a controlled entity or trust within those rules) or under 707(b) is a disqualified person in their own right, with the ownership tests read at 10 percent instead of 50 percent. Prior service in an agent category is not required.
So a sibling is captured by the relationship test whether or not they ever acted as your broker. A more distant relative outside 267(b) — a cousin, for instance — is captured only if they land in an agent category, or if they bear a 10-percent-threshold relationship to someone who does.
Step 3: Read the routine-services carve-out narrowly
The carve-out covers routine financial, title insurance, escrow, or trust services provided by a financial institution, title insurance company, or escrow company — and, separately, services performed for you on section 1031 exchanges. A title company that closed your last three purchases is not disqualified on that basis alone, and a QI that accommodated your prior exchange is not disqualified by having done so.
The exception stops there. If that same title company also gave you real estate brokerage advice or acted as your investment banker on a separate deal inside the window, the carve-out does not reach the relationship. Read the services actually rendered, not the label on the invoice.
Step 4: Treat bonding as a separate question
Disqualification is a legal status; financial protection is a different subject, and clearing one says nothing about the other. There is no federal licensing regime for qualified intermediaries, and no federal requirement that one carry a fidelity bond or errors and omissions coverage. A small number of states regulate exchange facilitators directly, with bonding, insurance, or qualified escrow requirements that vary by state — worth confirming against the rules of the state where the property sits.
A candidate can be entirely clear under Treas. Reg. 1.1031(k)-1(k) and carry no bond at all. What bond and errors and omissions coverage a 1031 QI holds is a distinct line of inquiry from disqualified-person status.
Step 5: Put the answer in writing
Ask the candidate directly, in writing, whether they or their firm acted as your attorney, accountant, employee, real estate agent or broker, or investment banker or broker at any point in the 24 months before the anticipated closing date, and whether any 267(b) or 707(b) relationship exists at the 10 percent threshold. A verbal assurance from an escrow officer is not documentation you can point to later.
The output is a signed statement, however short, that becomes part of the exchange file. A generic disclosure paragraph buried in the boilerplate agreement is not the same thing as a specific answer to your specific relationship history.
Step 6: Confirm before the relinquished property closes
The exchange agreement has to be in place, and the intermediary has to be eligible, before the relinquished property transfers. There is no mechanism to swap in a compliant QI after proceeds have already moved to a disqualified one.
The disqualification check belongs on the closing timeline alongside the 45-day identification deadline. Both run on fixed clocks that do not pause for a review someone meant to do earlier.
Common situations
An accountant offers to set up the exchange. If that accountant prepared your return, reviewed your books, or gave you tax advice inside the 24-month window, the accountant category applies, and the firm is captured along with the individual.
The listing agent also runs a QI service. An agent who represented you in the sale of the relinquished property falls squarely in the real estate agent or broker category for that exchange, regardless of how the QI division is branded or staffed.
A relative with a real estate license offers to hold the funds. Run both tests. A relative inside 267(b) is disqualified by relationship alone; one outside it is reached through the agent categories or through a 10-percent-threshold relationship to one of your agents.
The sale has closed and the attorney who represented you was named as QI. There is no retroactive fix once funds have moved. That is a matter for a tax professional to assess against the specific facts.
The escrow company handling closing wants to serve as QI. Confirm exactly which services that company provided in the prior 24 months. Routine escrow and title work by an escrow or title insurance company sits inside the carve-out; brokerage or advisory work layered on top of it does not.
Where to look for the rest
- Top1031's Learn section covers the mechanics behind the deadlines this check has to fit inside, including the 45-day identification and 180-day completion windows.
- A qualified tax professional or exchange attorney, for the related-party analysis under 267(b) and 707(b) — those rules turn on ownership percentages and trust structures the regulation text alone does not resolve.
- Your own records. Engagement letters, 1099s, and closing statements from the past two years reconstruct the service history faster than memory does.
Where this sits in the exchange timeline
Once the intermediary is confirmed clear of Treas. Reg. 1.1031(k)-1(k), the 45-day identification clock is the next fixed deadline, and DST interests are one of the replacement property types investors identify against it. The Top1031 directory catalogs DST offerings from SEC filing data rather than sponsor marketing — a separate line of diligence from QI eligibility, running on the same calendar.
FAQ
Who counts as a disqualified person under the qualified intermediary rules?
Anyone who acted as your employee, attorney, accountant, investment banker or broker, or real estate agent or broker within the two-year period ending on the transfer of the first relinquished property; anyone bearing a 267(b) or 707(b) relationship to you at the regulation's 10 percent threshold; and anyone bearing that same relationship to one of those agents.
Does a family relationship alone disqualify a QI candidate?
It can. Relationships described in 267(b) or 707(b) are an independent disqualification path under the regulation, with 10 percent substituted for 50 percent in the ownership tests. Prior service as your agent is not required for that path to apply.
Are title and escrow companies exempt?
Routine financial, title insurance, escrow, or trust services provided by a financial institution, title insurance company, or escrow company are not taken into account. The carve-out does not extend to brokerage or advisory work performed for you in the same window.
Is a qualified intermediary required to be bonded?
Not under federal law, which imposes no licensing or bonding regime on QIs. A handful of states regulate exchange facilitators and impose their own requirements. Bonding and disqualified-person status are separate questions.
The relationships most likely to trip it
The rule catches people through their own professional network, not through strangers. The accountant who has handled the returns for years, the broker who sold the relinquished property last spring, the sibling with a real estate license: those are the relationships reached for first, precisely because they are already trusted — and they are the ones the two-year look-back and the related-party tests were written to surface.