Can the buyer wire the sale proceeds to the title company, not the QI?

The buyer funds escrow normally; the assignment changes only the payee of the net proceeds

Nothing in the regulation tells the buyer where to send money. The intermediary safe harbor turns on two things: your rights under the sale contract are assigned to the intermediary with all parties notified in writing on or before the transfer, and the money you would have received is instead held under an agreement that limits your rights to it (26 CFR 1.1031(k)-1(g)(4)(v) and (g)(6)).

That is why every large intermediary describes the same flow. IPX1031 says the net proceeds from the relinquished property sale are paid directly to the intermediary to be held in a separate account, Legal 1031 says the net proceeds must be sent directly from closing to it, and Asset Preservation asks the closing agent to show it as seller on the settlement statement, 'as Qualified Intermediary for' you.

The buyer's lender, the buyer's wire and the buyer's closing disclosure are untouched. Escrow pays off your loan, commissions and prorations from the buyer's funds and sends the remainder to the intermediary instead of to you.

Why money paid to your attorney, agent or own escrow account is money paid to you

The regulation states that actual or constructive receipt of money by an agent of the taxpayer is receipt by the taxpayer, and defines constructive receipt as money credited to your account, set apart for you or otherwise made available so that you may draw upon it (26 CFR 1.1031(k)-1(f)(2)). A net-proceeds check made out to you and endorsed to the intermediary, or a wire to your attorney's trust account 'for the exchange', is exactly that.

Asset Preservation's constructive-receipt page cites Crandall v. Commissioner, where funds left in a title company escrow without express restrictions on the taxpayer's access were held to be constructively received, and the exchange failed despite the taxpayer's intent. The title company holding money is fine; the title company holding money you could ask for is not.

The fix is structural, not verbal. The exchange account agreement must state that you have no right to receive, pledge, borrow or otherwise obtain the benefits of the money before the exchange period ends, with the two exceptions the regulation allows (26 CFR 1.1031(k)-1(g)(6)); Can I touch or borrow against my exchange funds? covers those.

What the closing instructions and settlement statement must say

Your intermediary sends the closing agent written exchange instructions before closing; 1031 CORP describes its exchange officer providing the closing agent with 1031 exchange instructions ahead of each closing. Read them against the settlement statement before you sign.

• Seller line: the intermediary named as qualified intermediary for you, with your name following (Asset Preservation's format)
• Net proceeds: payable to the intermediary's exchange account by wire, with no 'proceeds to seller' line unless you have chosen to take taxable cash
• Deed: from you directly to the buyer; the intermediary appears on no deed and no title policy
• Payoffs, commissions, prorated taxes, transfer taxes and title fees: paid at closing from the buyer's funds; the regulation disregards these transactional items (26 CFR 1.1031(k)-1(g)(7))
• Copies: the intermediary receives the signed statement and the wire confirmation the same day

Confirm the wire by phone: the escrow-to-QI transfer is a fraud target

The intermediary's wire instructions should reach the closing agent inside the exchange documents, and any change should be treated as fraud until proven otherwise. The Consumer Financial Protection Bureau's guidance on closing wires is to never follow instructions contained in an email and to verify the account name and number in person or at a phone number agreed in advance, warning that scammers work by suggesting last-minute changes to wiring instructions.

1031 CORP describes its own practice as refusing to redirect funds on an emailed request and calling the known party at a previously verified number before any money moves. Ask the closing agent to call the intermediary at the number printed in the exchange agreement, not one in an email signature, and to confirm receipt with you afterwards.

The CFPB cites FBI figures showing reports of these attempts rose 1,100 percent between 2015 and 2017, with an estimated loss of nearly $1 billion in real estate transaction costs in 2017 alone. Protecting your 1031 from wire fraud, QI mistakes and title errors sets out a full protocol.

On the purchase leg the direction reverses: the QI wires the replacement closing

When you buy, the intermediary funds the replacement escrow directly. IPX1031's process authorizes the intermediary to wire funds directly to the seller or closing agent for the purchase of the replacement property, and the FEA describes the intermediary delivering funds directly to the closing agent, so money never passes through your account on the way in either.

Send the intermediary the purchase contract, the closing agent's contact and the amount needed a few business days before the replacement closing, since intermediaries require a written funding request and their own verification call. If the replacement is a DST, the intermediary wires the sponsor's closing agent the same way; Do I need a QI to exchange into a DST? walks through it.

Any excess left after the replacement closes comes back to you from the intermediary and is taxed as boot; What happens to leftover cash after my exchange? covers the timing. Check both settlement statements with your CPA or attorney before the wires go.