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IRS Extends Deadlines for IRC §1031 Exchange Transactions and Qualified Opportunity Fund Investments

April 14, 2020Client Alert

On April 9, 2020, the IRS issued Notice 2020-23 providing sweeping tax filing and tax payment deferral until July 15, 2020. This relief includes extensions of the 45- and 180-day deadlines for IRC §1031 exchange transactions and the 180-day deadline for deferring capital gains by investing in a qualified opportunity fund.

Here are the key points about the extensions.

What is the relief for taxpayers who are engaged in IRC §1031 exchanges?

  • If a taxpayer began (or begins) an IRC §1031 exchange between February 16, 2020, and May 30, 2020, the taxpayer’s 45-day replacement property identification deadline is extended to July 15, 2020.
  • If a taxpayer began an IRC §1031 exchange between October 4, 2019, and January 16, 2020, the taxpayer’s 180-day exchange deadline is extended to July 15, 2020.

How does a taxpayer “begin” an IRC §1031 exchange?

  • A “forward exchange” begins when the taxpayer sells the relinquished property.
  • A “reverse exchange” begins when the Exchange Accommodation Titleholder (EAT) acquires the replacement property or the relinquished property, as applicable.

How is the IRC §1031 exchange relief provided in Notice 2020-23 different from the IRC §1031 exchange relief provided in previous disasters?

  • In previous disasters, the IRS granted 120-day extensions to taxpayers who began exchanges during the 45-day period and/or 180-day period immediately preceding the “disaster date.”
  • Conversely, under Notice 2020-23, any 45-day identification deadline or 180-day exchange deadline that falls in between April 1, 2020, and July 14, 2020, is only extended to July 15, 2020.
  • Our Firm and certain other practitioners in this area believe that under the applicable authority, the deadlines should have been extended by a minimum of 120 days and that not doing so was a result of the Treasury’s and IRS’ other responsibilities. We are planning to follow up on this issue and will reissue this Bulletin if the foregoing deadlines are further extended.

Is it possible for a single taxpayer to receive both the 45-day identification deadline extension and the 180-day exchange deadline extension?

  • No. Under Notice 2020-23, a taxpayer will receive either the 45-day identification deadline extension or the 180-day exchange deadline extension, but not both.

What relief is provided for taxpayers who intend to invest in qualified opportunity funds?

  • If a taxpayer realized a capital gain between October 4, 2019, and January 16, 2020, the taxpayer’s 180-day deadline to invest in a qualified opportunity fund will be extended to July 15, 2020, so long as the taxpayer is otherwise permitted to defer the applicable capital gain under the rules contained in IRC §1400Z-2 and the Treasury Regulations promulgated thereunder.

How does all of this work?

Here are some examples.

Example #1 

If a relinquished property was sold on December 1, 2019, the exchange will have the following deadlines.

  • Identification of Replacement Property. Without the extension, the 45-day deadline to identify the replacement property would be January 15, 2020. This deadline is not affected by the extension since it does not occur between April 1, 2020, and July 15, 2020.
  • Receipt of Replacement Property. Without the extension, the 180-day deadline to receive the replacement property would be May 29, 2020. With the extension, the new deadline is July 15, 2020.

Example #2 

If a relinquished property was sold on March 1, 2020, the exchange will have the following deadlines.

  • Identification of Replacement Property. Without the extension, the 45-day deadline to identify the replacement property would be April 15, 2020. With the extension, the new deadline is July 15, 2020.
  • Receipt of Replacement Property. Without the extension, the 180-day deadline to receive the replacement property would be August 28, 2020. This deadline is not affected by the extension since it does not occur between April 1, 2020, and July 15, 2020.

Example #3 

A taxpayer realizes gain from the sale of stock on November 1, 2019. Without the extension, the 180-day deadline for the taxpayer to re-invest its gain in a qualified opportunity fund would be April 29, 2020. With the extension, the new deadline is July 15, 2020.

What does the State of California say?

  • IRC §1031 Exchange Extensions. The California Franchise Tax Board has announced on its website that California will conform to the Federal extensions of the 45-day identification deadline and 180-day exchange deadline discussed in this alert.
  • Qualified Opportunity Fund Investment Extensions. California does not conform to federal law regarding tax benefits for investing in qualified opportunity funds.