Extensions Outside Usual Rev. Proc. 2018-58 Relief
Those taxpayers currently engaged in a delayed or reverse 1031 exchange and struggling to complete their transaction due to the Coronavirus (COVID-19) crisis received long awaited relief from the 45-Day Identification and 180-Day Exchange Period deadlines in Notice 2020-23 released on April 9th. The notice provides that any person performing a time-sensitive action listed in either § 301.7508A-1(c)(1)(iv) of the Procedure and Administrative Regulations or Revenue Procedure 2018-58, 2018-50 IRB 990 (December 10, 2018), which is due to be performed on or after April 1, 2020, and before July 15, 2020 (Specified Time-Sensitive Action), is an Affected Taxpayer. For purposes of this notice, the term Specified Time-Sensitive Action also includes an investment at the election of a taxpayer due to be made during the 180-day period described in section 1400Z-2(a)(1)(A) of the Code. This includes the 45-Day Identification and 180-Day Exchange Period deadlines in a 1031 delayed or reverse exchange.
This type of extension is vastly different than the 120 day extension usually allowed under Section 17 of Revenue Procedure 2018-58 for federally declared disasters, such as hurricanes, wildfires and terrorist attacks. Section 17 provides 120 days or the date specified in the disaster notice which is posted on the IRS website. The extra time would be beneficial due to the challenges faced with the Stay at Home Orders and many parties to the real estate transaction being deemed non-essential workers and unable to work. We are seeing lenders pulling previously approved financing, buyers walking away from the agreement and the inability to complete appraisals. Some advisors believe Section 17 of Rev. Proc. 2018-58 automatically applies if the taxpayer is affected by the disaster.
On April 14th, Jennifer Auchterlonie, special counsel to the IRS associate chief counsel (procedure and administration) spoke on a webinar for the ABA Section of Taxation and noted there have been many questions regarding the 1031 extensions. She stated IRS is working on FAQs explaining the extension relief. Nothing has been released as of April 23rd.
On April 20th, a letter signed by 19 real estate related associations, including the Federation of Exchange Accommodators (FEA), was sent to Treasury Secretary Mnuchin requesting the application of Section 17 of Rev. Proc. 2018-58 for all taxpayers completing a like-kind exchange. The letter also asks for the effective date to be retroactive back to March 13th when President Trump signed the Stafford Act declaration. This is also when many states issued their Stay at Home orders. 1031 CORP.'s Collegeville office is located in Montgomery County, the first Pennsylvania county to be "shutdown" effective March 13th.
1031 CORP. will advise if further guidance is released. Information will be posted on our website and social media channels immediately.
Absent further IRS guidance, any taxpayer with a 45-Day Identification Period or 180-Day Exchange Period deadline between April 1 and July 15, 2020 will have an automatic extension to July 15th. For those initiating their 1031 exchange after May 31st, there will be no extension to the 45-Day Identification Period.