March 31st we posted a blog providing detailed information regarding a request from a coalition of interested real estate groups to the IRS to provide some relief to taxpayers on mandated exchange deadlines. On April 9, 2020, the IRS issued Notice 2020-23 Providing Additional Relief for Taxpayers Affected by the COVID-19 Pandemic. Affected (“Exchangor" or "Exchanger") Individual or entity desiring an exchange. Taxpayer s performing Section 1031 exchanges are included in the amplified relief. Among other subjects, this Notice extends the 45-day identification period and the 180-day exchange period for taxpayer/exchangers whose deadlines were due on or after April 1, 2020. The deadlines for those exchangers to identify replacement property and/or acquire replacement property are now July 15, 2020. It is important to note there is no retroactive effect if a taxpayer’s 45-day identification deadline and 180-day exchange period ended before April 1, 2020. Many expected the relief would be retroactive to an earlier time when the effect of the virus was making adherence to the deadlines difficult but such is not the case.
Section 1031 rules require potential replacement properties to be timely identified on or before midnight of the 45th day following the sale of the relinquished property. The taxpayer must then close on the purchase of the designated replacement property within 180 days of the relinquished property sale.
Accruit has previously provided a summary of the rules pertaining to extensions of exchange transactions due to federally declared disasters. However, Notice 2020-23 is somewhat confusing to taxpayers and their professionals because it is not written like previous Disaster Relief Notices. Particularly, Notice 2020-23 does not expressly reference Section 17 of Rev. Proc. 2018-58. In the absence of an express reference to Section 17, it appears the normal 120-day extension from the date of the federally declared disaster does not apply to the current COVID-19 pandemic.
While this may not be the relief for which many taxpayers hoped, Accruit is thankful the IRS acted quickly on the letter request directed to IRS/Treasury in late March by the coalition including the Federation of Exchange Accommodators (FEA), of which Accruit is a member. At this time we don’t know whether Notice 2020-23 will be the final guidance the IRS issues related to the 45-day identification period and the 180-day exchange period. Though the Notice provides some relief to taxpayers with pending exchanges, several issues are left unresolved or unclear. Accruit’s representatives on the Government Affairs Committee of the FEA, are working with others to seek clarification regarding some of the open items and possibly request the IRS change the start date of the extension to January 20, 2020 (the date of the FEMA disaster declaration) or March 13, 2020 (the date of the Stafford Act/FEMA declaration).
If you have any specific questions about this relief, please contact your client service person at Accruit. The information contained in this article is not to be considered tax or legal advice and taxpayers should consult independent counsel with regard to the particular matter; however, Accruit will continue to monitor the situation closely and share any information on further extensions or modifications as soon as they become available. You may also continue to check on Accruit’s website for any further updates.