In two recent Information Letters, the IRS has affirmed its taxpayer-unfavorable interpretation of deadline extension provisions in COVID-19 relief. When the IRS issued Notice 2020-23 to extend the deadlines for most time-sensitive actions, many experts noted that the provisions could be interpreted to extend like-kind exchange deadlines to either July 15, 2020, or 120 days from the original date. See RSM’s tax alert describing the controversy. RSM suggested readers take the more cautious approach, as the IRS gave some indication it supported the July 15 deadline.
The Branch Chief of Branch 4 described her interpretation of two aspects of the extension – first, that the deadline for completing any required action was extended only to July 15. Second, that a taxpayer with extended deadlines must still observe caution with respect to constructive receipt of funds prior to completing certain required actions.
In INFO 2020-0011, Branch Chief Angella Warren responded to a letter from Senator Todd Young, and stated that actions required for a like-kind exchange much be completed by July 15. In INFO 2020-0025, Branch Chief Warren responded to a taxpayer, emphasizing that deadlines are extended only to July 15 and explaining that the taxpayer must avoid constructive receipt of funds — a potential concern where the taxpayer has made agreements with a qualified intermediary (QI) or other party to release proceeds from the sale of the taxpayer’s relinquished property on particular dates decided pre-extension.
Taxpayers may interpret the rights conferred by Notice 2020-23 differently, but the IRS has now made clear it interprets the COVID-19 deadline extensions to extend no further than July 15. It is also clear that the extensions do not absolve taxpayers of the responsibility to avoid coming into actual or constructive receipt of funds. Accordingly, taxpayers who completed exchanges with extended deadlines should review agreements with their QIs to make sure the agreements did not authorize taxpayers to receive funds prior to extended deadlines. Taxpayers that may have relied on the 120-day extension to complete like-kind exchanges are strongly advised to contact their tax adviser.