IRS to Issue FAQ's on 1031 Exchange Extensions

[Bill Exeter]

FAQ Coming on Like-Kind Exchange Extensions

Posted on Apr. 15, 2020

The IRS is putting together a FAQ that will clarify the recently announced extension of deadlines for completing like-kind exchange transactions.

“We have been getting a lot of questions about [section] 1031 exchanges, and we are working on FAQs that will help explain what the relief is there,” Jennifer Auchterlonie, special counsel to the IRS associate chief counsel (procedure and administration), said April 14 on a webinar hosted by the American Bar Association Section of Taxation.

According to Tom Greenaway of KPMG LLP, some taxpayers are confused about how the expanded relief provided April 9 in Notice 2020-23, 2020-18 IRB 1, applies to the deadlines for complying with the 45-day identification period and 180-day exchange period required under section 1031(a)(3) and Rev. Proc. 2000-37, 2000-2 C.B. 308.

Notice 2020-23 states that the coronavirus-related relief provided in earlier notices generally applies to all taxpayers with a tax return filing deadline or payment due date between April 1 and July 15. The notice also gives taxpayers until July 15 to perform the time-sensitive actions listed in reg. section 301.7508A-1(c)(1)(iv)-(vi) or Rev. Proc. 2018-58, 2018-50 IRB 990, that must be performed between April 1 and July 15.

Rev. Proc. 2018-58 allows participants in a section 1031 like-kind exchange to extend the deadlines for identifying replacement property and completing transactions “by 120 days or to the last day of the general disaster extension period authorized by an IRS News Release or other guidance announcing tax relief for victims of the specific federally declared disaster, whichever is later.”

Taxpayers have pointed out that applying the “whichever is later” language means that some section 1031 deadlines could get extended beyond the July 15 due date set in Notice 2020-23, and are wondering if that’s what the IRS intended.

“We hear all of your questions, and we’re working on more of an explanation for you,” said Auchterlonie.

Requests for Additional Relief
For taxpayers whose deadlines weren’t extended by the IRS notices, the agency is keeping a list of
requests for relief that have been coming in. “If people have those requests that they want to make,
they can send them in and I will put them on the list,” said Auchterlonie.

If some filing and payment deadlines aren’t extended, taxpayers may still be able to argue that the
reasonable cause exception applies to any late-payment or late-filing penalties, said Greenaway.
“That’s not as comforting as the official postponements, but I think the general sense that we should
all be getting from the IRS and Treasury is that [they] are not looking to penalize and punish
taxpayers right now,” Greenaway said. “If you exercise ordinary business care and prudence and for
any number of circumstances can’t meet your obligations, I think, in time, any kind of penalty issue
should be able to be resolved.”

Auchterlonie said taxpayers should also keep in mind the IRS’s first-time penalty abatement policy.