Oversight
Are 1031 Exchange Companies Regulated?
Mostly not. There is no federal licence, no examiner and no register, which puts the diligence somewhere you may not expect.
The short answer
1031 exchange companies under federal law: nothing
It is worth stating plainly, because people assume otherwise. A company holding your exchange funds is not licensed by any federal body, is not examined by anyone, need not hold capital against the balances it carries, and answers to no supervisor in the way a bank or a broker-dealer does.
The Internal Revenue Code creates the role of the qualified intermediary and tells you who may not fill it. It says nothing about who may. There is no competence standard to meet and no application to fail.
Why the gap exists
Largely by accident. The qualified intermediary emerged from case law and Treasury regulation as a mechanism for making delayed exchanges work, not as a category of financial institution that somebody set out to supervise. The role was designed to solve a tax-timing problem; the fact that solving it requires a third party to hold large sums for six months was a consequence rather than the point.
Financial regulation is generally organised around institutions (banks, brokers, insurers) rather than around functions. A qualified intermediary is not any of those, so it falls between the frameworks. Attention has mostly arrived after failures rather than before them, and state by state.
The states that do impose rules
A minority of states have legislated, generally after losses in their jurisdiction. The requirements differ enough that “regulated state” means very different things in different places.
| State | Broad approach |
|---|---|
| California | Bonding or insurance obligations, plus standards on how exchange funds are held and invested |
| Nevada | Registration and financial-assurance requirements |
| Colorado | Obligations around insurance and the handling of exchange funds |
| Virginia | Requirements covering bonding and fund handling |
| Washington | Registration and bonding obligations |
| Idaho | Bonding and fund-handling requirements |
| Maine | Requirements covering intermediaries operating in-state |
| Oregon | Registration and financial-assurance requirements |
What those rules actually cover
Where states have acted, the interventions cluster around three things:
- Financial assurance. A fidelity bond, a letter of credit or minimum insurance, so that some money stands behind a failure.
- Fund handling. Rules on where exchange funds may sit and what they may be invested in, sometimes requiring separate accounts.
- Registration. A filing with a state agency, so the firm is at least identifiable.
Note what is almost always absent: any assessment of competence. Registration confirms a company exists and carries a bond. It does not mean anyone has looked at its systems, its staff, or its record.
Voluntary standards and trade bodies
Industry associations exist and publish best-practice guidance, and membership is a mild positive signal. It is not supervision. A trade body does not examine its members’ accounts, cannot compel anything, and cannot compensate you. Treat membership as one input among several rather than as a substitute for the questions below.
What the regulatory gap means when you pick a 1031 exchange company
In a supervised sector, a regulator does much of your diligence for you. Here, nobody does. Four questions carry most of the weight, and all four should be answered in writing before you sign:
- Are my funds held in a segregated account for my exchange, or pooled with other clients’ money?
- Which bank holds them, and how much FDIC coverage reaches a balance of my size?
- What are the fidelity bond and errors & omissions limits, in dollars?
- What happens to the interest earned on my funds, and where does the agreement say so?
A firm that answers all four crisply and in writing has effectively self-regulated. What happens when one fails explains why the first question does most of the work.
Questions about regulation
Are 1031 exchange companies regulated?
Not at the federal level. There is no licence, no registration, no capital requirement and no supervising agency for qualified intermediaries. A small number of states impose bonding, insurance or registration obligations, but in most of the country anyone may form a company, describe itself as a qualified intermediary and take custody of client funds without any approval.
Which states regulate qualified intermediaries?
A minority. Commonly cited examples include California, Nevada, Colorado, Virginia, Washington, Idaho, Maine and Oregon. The requirements vary considerably: some mandate a fidelity bond or minimum insurance, some require registration with a state agency, and some set standards for how exchange funds must be held. Verify the current rule directly with the relevant state, because these statutes change.
Do qualified intermediaries need a licence?
No federal licence exists. Where a state requires registration it is usually a filing rather than a competence examination, so it confirms the company exists and carries a bond rather than that anyone has assessed its people or its systems. No US regime examines qualified intermediaries the way banking regulators examine banks.
Is my money protected by the FDIC in a 1031 exchange?
Only to the extent the funds sit in an insured deposit account and the coverage limits reach your balance. FDIC insurance is per depositor, per insured bank, per ownership category, so a seven-figure exchange in a single ordinary account is largely uninsured unless the intermediary uses a structure that extends coverage across banks. Ask for the specific insured amount, not a general assurance.
Who do I complain to about a 1031 exchange company?
There is no dedicated regulator, which is the practical consequence of the gap. Depending on the facts you may have recourse to your state attorney general, a state agency if the firm is registered there, the FBI or the IRS where fraud is alleged, or the civil courts. None of these is a substitute for choosing carefully in the first place.
Ask us all four questions
Easy1031 answers them in writing: a segregated account at a commercial bank with up to $175M FDIC coverage, a $10M fidelity bond, $5M errors & omissions, and an interest share stated in the exchange agreement.
Easy1031 publishes this site and appears in the directory above. It has a commercial interest in you starting an exchange, worth weighing, and worth comparing against other intermediaries.