IRS Grants Extension of 1031 Exchange 45 and 180 Day Due Dates

45 and 180 Calendar Day Deadlines Extended Due to Coronavirus (COVID-19)  

The U.S. Treasury (Internal Revenue Service) issued Notice 2020-23 late Thursday evening, April 9, 2020, granting relief to investors that are in the middle of a 1031 Exchange transaction. 

This Notice is very different from the typical disaster declaration and extensions granted in the past and is somewhat confusing based upon the way it was drafted.  

Historically, the President would declare a Natural Disaster for a specific geographic area and a date specific event and the U.S. Treasury (Internal Revenue Service) would then issue a Disaster Relief Notice providing a 120-calendar day extension to the 45- and 180-calendar day deadlines.  This approach was not used this time.

IRS Notice 2020-23

Notice 2020-23, which revises Notice 2020-18, 2020-15 IRB 590 (April 6, 2020), and Notice 2020-20, 2020-16 IRB 660 (April 13, 2020), does not specifically address Section 17 contained within Revenue Procedure 2018-58, so it would initially appear that the 120-calendar day extension is not applicable to the current situation.

Affected Taxpayer (Investor)

The Notice provides that any person performing a time-sensitive action listed in either Section 301.7508A-1(c)(1)(iv) – (vi) of the Procedure and Administration 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 on or before July 15, 2020 (Specified Time-Sensitive Action), is an Affected Taxpayer. 

Deadline Extension

Therefore, the guidance provided within Notice 2020-23 applies to investors that have a 45-calendar day identification deadline or a 180-calendar day exchange deadline that falls on or after April 1st, 2020 and on or before July 15th, 2020. The applicable deadline that falls within those timelines is extended to July 15th, 2020.

Exeter 1031 Exchange Services, LLC will continue to monitor the current situation and communicate any new guidance from the U.S. Treasury (Internal Revenue Service).  Check the Exeter News Wire for the most recent information and updates.

1031 Tax Deferred Exchange Deadlines

Need to quickly understand how the 45 calendar day identification period and the 180 calendar day exchange deadline works with the 1031 Tax Deferred Exchange? Welcome to the next episode of Exeter Tax Deferred Solutions' White Board Videos, which will help you learn the 1031 Exchange basics quickly. View the entire series of The Exeter Edge White Board Videos.

Backdating the Identification Form in Your 1031 Exchange

You are probably very familiar with the 45 day identification period if you have ever completed a 1031 exchange transaction. The taxpayer must identify in writing the potential replacement properties that they are considering buying as part of their 1031 exchange transaction, and the identification must be made with in 45 calendar days of the closing of the relinquished (sale) property.

45 Day Period Moves Fast
The 45 day identification period moves very quickly. In fact, it is only six weekends, which is not a lot of time to search for suitable like-kind replacement properties for your 1031 exchange. Taxpayers should start looking for replacement property well before they have closed on their relinquished properties to help minimize the stress involved with the 45 day ID period.

It is not surprising that many taxpayers may get a little stressed out during the 45 day identification process and time period. O.K. That might be an understatement in certain cases, especially as the taxpayer gets to the end of his or her identificatio period.

Backdating or Altering the Identification Form
Actually, my favorite question is "what is your position on the 45 day period?" I can't actually say this, but I really want to respond with "Are you kidding me?" The 45 day identification requirement is contained with the Internal Revenue Services, the Treasury Regulations and in numerous IRS rulings and court decisions. I think it is just about as clear as it can be that you must identify no later than midnight of the 45th day. There is no gray area here.

"But, ABC Exchange Company will allow me to backdate my identification form." "Nobody ever gets caught." These are some of my favorate follow-up comments that we get after we inform them that there is no flexibility with the 45 day identification requirement, even though we wish there were.

It's Tax Fraud; Pure and Simple
I realize that the IRS has been very loose in its enforcement of this area, but it will happen at somepoint in time. The act of backdating, altering or amending your identification form after the end of yoru 45 day identification period is tax fraud. There is no gray area.

I don't know about you, but I certainly do not want to be the poster boy for the IRS when they decide to actually prosecute some of these cases.

It is the same as the mortgage fraud was going on for years, which is part of the reason we are n the mess that we are in now. Clients used to respond all the time that no one ever gets caught if they say it was owner occupied when in fact it was rental property. We would still warn them. Well, the FBI is investigating and prosecuting those who lied right now. Its fraud, period.

Do you really want to take the chance that you might be the one that gets caught? More importantly, do you really want to work with a 1031 exchange company that is routinely breaking the law? I would prefer that they be around for a long time so that they are there for me if I get audited. Just my two cents.