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In a 1031 exchange, which is a swap of one investment property for another that allows capital gains taxes to be deferred, an Accommodator is also known as a Qualified Intermediary (QI). The Accommodator plays a critical role in the 1031 exchange process. Here is what the Accommodator does:

  1. Facilitates the Exchange: The Accommodator holds the sale proceeds from the relinquished property in a trust or escrow account to ensure that the seller does not have actual or constructive receipt of the funds, which is a requirement for a valid 1031 exchange.
  2. Documentation: They prepare the legal documents necessary for the 1031 exchange, including the exchange agreement, assignment agreements, and notices to all parties involved in the transaction.
  3. Ensures Compliance: The Accommodator makes sure that the exchange is completed in compliance with Section 1031 of the Internal Revenue Code and Treasury Regulations, which involves adhering to strict timelines and rules regarding the identification and receipt of the replacement property.
  4. Advisory Role: While not tax advisors, Accommodators often provide guidance on the process and requirements of the exchange, but they do not offer legal or tax advice. Taxpayers should consult with their tax advisors for the tax implications of their specific situation.
  5. Facilitates Timely Transactions: They ensure that the exchange is completed within the required time frames; for instance, the new property must be identified within 45 days and the exchange completed within 180 days after the sale of the relinquished property.

The use of an Accommodator is essential in a 1031 exchange because the Internal Revenue Service (IRS) requires that the transaction be structured in such a way that the taxpayer does not receive the sale proceeds at any point. The Accommodator thus acts as a neutral third party to hold the funds and help execute the exchange according to the relevant tax laws.