Universal Deadline Extensions Draw Attention to Section 1031 Periods

Abstract

The IRS published Notice 2020-23 extending section 1031 periods, but that guidance lacks clarity related to several key issues. The IRS has indicated that it will issue additional guidance in the form of FAQs, which should add clarity. Until then, exchangers, qualified intermediaries, and tax advisors must make decisions based upon the existing guidance. We hope the IRS will soon address issues that are central to those decisions. In the meantime, this article does the following:

1. Provides three criteria that apply to the analysis and application of Notice 2020-23 and inform future guidance the IRS may publish for exchanges affected by COVID-19: (i) extend generous relief to exchangers, (ii) be simple to apply and explain, and (iii) vivify real estate markets.

2. Explains the technical aspects of IRS extension guidance, assisting parties making decisions prior to the IRS additional guidance or will make decisions regarding issues that the IRS guidance may not cover.

3. Demonstrates that the 120-day extension in Rev. Proc. 2018-58 should apply to exchanges covered by Notice 2020-23.

4. Warns that qualified intermediaries should err on the side of caution by interpreting Notice 2020-23 as applying the 120-day extension to avoid distributing proceeds prior to the expiration of the (g)(6) restrictions.

5. Suggests that IRS guidance should apply the Notice 2020-23 extensions to all exchanges entered into on or before any date from January 20, 2020, until July 15, 2020.

The detailed analysis in the article will serve as a reference for parties dealing with pending or planned exchanges and for parties who must carefully analyze the application of extension guidance in the future.

Keywords: section 1031, covid-19, coronavirus, 45-day identification period, 180-day exchange period