On March 13, 2020, the President issued an Emergency Declaration under the Stafford Act, and instructed the Secretary of the Treasury “to provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency, as appropriate, pursuant to 26 U.S.C. 7508A(a).” In response, the IRS and Treasury have released a series of guidance for affected taxpayers, which now includes taxpayers involved in like-kind exchange transactions under section 1031, and taxpayers using section 1033 to defer gain from the involuntary conversion of property.
Notice 2020-23, issued April 9, 2020, broadly extends the deadlines for payments and filing obligations. In section III(A), Notice 2020-23 describes taxpayers affected by the COVID-19 Emergency and relief for payment or return or form filing obligations. This provision covers any person performing a time-sensitive action listed in Rev. Proc. 2018-58.
Rev. Proc. 2018-58 provides an updated list of time-sensitive acts, the performance of which may be postponed under sections 7508 and 7508A of the IRC. Section 1.02 states that Rev. Proc. 2018-58 is activated when the IRS publishes a notice or other guidance in response to a federally declared disaster.
Under section 17.02(1) of Rev. Proc. 2018-58, the last day of the 45-day and 180-day identification periods for like-kind exchanges under section 1031 that fall on or after the date of a federally declared disaster are postponed to the later of (a) the end of the general disaster extension period or (b) 120 days. This extension also applies to reverse exchanges and parking arrangements under Rev. Proc. 2000-37. However, the postponement may not extend beyond: (a) the due date (including extensions) of the taxpayer's tax return for the year of the transfer or (b) one year. In this case, the general disaster extension period is currently set to July 15.
A taxpayer who is a transferor must meet several important criteria to qualify for postponement. First, the relinquished property must have been transferred on or before the date of the federally declared disaster (or in a Rev. Proc. 2000-37 exchange, qualified indicia of ownership were transferred to the exchange accommodation titleholder). In addition, the transferor must meet one of the hardship qualifications in section 17.02(2)(b) of Rev. Proc. 2018-58. Fortunately, being an ‘affected taxpayer’ as defined in the IRS guidance announcing disaster relief counts, as does the relinquished property, replacement property or principal place of business of any party to the transaction being in the covered disaster area. Accordingly, virtually all taxpayers involved in a like-kind exchange transaction should qualify.
Importantly, section 1031 regulations prevent the taxpayer from receiving cash from a qualified intermediary (QI) prior to certain milestone dates. If a taxpayer receives cash from its QI on the original timeline, rather than the extended timeline, relief would not be available. Accordingly, taxpayers should consult with their tax advisors and maintain communication with the other parties to the transactions.
Rev. Proc. 2018-58 also lists elections respecting the nonrecognition of gain on the involuntary conversion of property under section 1033 as time-sensitive actions that are extended by Notice 2020-23. Note that taxpayers may also request one-year extensions of the time period for replacement under section 1033.
The extensions granted by Notice 2020-23 generally now apply to all taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020. This relief is automatic; affected taxpayers do not have to call the IRS or file any extension forms, or send letters or other documents to receive this relief. However, because of the specific timing rules under sections 1031 and 1033, affected taxpayers may have additional procedural hurdles to get relief.
Taxpayers involved in transactions under sections 1031 and 1033 are urged to consult with their tax advisors to determine available relief and how to extend their deadlines. RSM is monitoring all updates, so stay tuned for more information, as the IRS may further extend deadlines or issue guidance with more detailed procedures. To stay up to date on the latest information from RSM regarding the coronavirus public health emergency, visit our Coronavirus Resource Center.
