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CAN THE GOVERNMENT GIVE AN EXTENSION TO THOSE PARTIES IN A SECTION 1031 EXCHANGE AS A RESULT OF THE CORONAVIRUS?

Yes. Federal law permits the IRS to grant taxpayers affected by a federally declared disaster additional time to perform certain time-sensitive acts

As most of our readers are aware, the taxpayer has 45 days from the day of closing to Identify possible Replacement Properties and has up to 180 days from the day of closing to consummate a Replacement Property transaction.  

When Can IRS Change 1031 Exchange Deadlines?

Under certain circumstances, the IRS may postpone the 45 day identification period and the 180 day exchange period under I.R.C. Section 1031(a)(3) for tax-deferred exchanges.  More specifically, Section 17 of Rev. Proc. 2007-56 provides certain postponement procedures that will apply to a “Federally Declared Disaster.”  

Definition of “Disaster”

The definition presently used for a “disaster” is a natural catastrophe, which includes hurricanes, tornadoes, earthquakes, high waters, wind-driven waters, droughts, mudslides or snowstorms or regardless of cause, any fire, explosion, or flood, in any part of the United States, which in the determination of the President of the United States, causes damage of sufficient severity and magnitude to warrant major assistance to supplement the efforts and available resources of states, local governments, and disaster relief organizations in order to alleviate the damage, loss, hardship, or suffering caused thereby [See: 45 U.S.C.A. Section 5122(2)].

 It would seem that the Novel Coronavirus Pandemic has and will cause major damages to many parts of the United States.  Further, most state and local governments, as well as relief organizations, will need assistance to help alleviate the damages, losses, hardship, and suffering as a result.  

Has a Disaster Been Declared?

Has the President of the United States signed a federally declared disaster order that would cover Section 1031 exchanges and the parties involved?  Unfortunately, the answer is NO he has not.

On Friday, March 13, 2020, the President of the United States signed a National Emergency Order which grants considerable powers to give certain assistance but does not explicitly cover 1031 Exchange deadlines.

Obviously, he has his hands full trying to make sure that medical testing and medical facilities are available.  But, hopefully, within the next week, he will see fit to sign a federally declared disaster order, which would cover Section 1031 tax-deferred exchanges.  

We will keep you updated on any Federal government actions or orders that may affect timelines or any other aspect of 1031 Exchange transactions.

Here’s a link to a case study we published on Diaster Relief and 1031 Exchanges.