There’s been a lot of anxiety due to the COVID-19 pandemic’s effect on the economy. In the face of these challenges, the federal government quickly announced extraordinary taxpayer relief measures by postponing tax filing and payment deadlines to July 15, 2020, as well as provide other emergency relief such as the COVOD-19 loan programs.

Notice 2020-23 is the most recent tax relief announcement provided by the IRS and Treasury in response to the President’s issuance of an emergency declaration under the Stafford Act on March 13, 2020. It expands upon the relief provided in earlier notices extending the tax filing and payment deadlines to July 15, 2020. This notice extends the postponement relief available to “affected taxpayers” to include to any person performing a time sensitive act under Section 7805A-1(c)(iv) – (v) of the Procedural and Administrative Regulations or Revenue Procedure 2018-58, which is due to be performed on or after April 1, 2020 and before July 15, 2020.

Rev. Proc. 2018-58 provides a list of time sensitive acts that can be postponed due to a federally declared disaster under Internal Revenue Code Section 7805A.  Section 17 of Rev. Proc. 2018-58 specifically addresses 1031 exchange deadlines for both forward and reverse exchanges and how various difficulties concerning those transactions may enable an exchanger who would not otherwise be considered an “affected taxpayer” under a federally declared disaster declaration to qualify for postponement relief.  So, clearly, Section 1031 is covered by Notice 2020-23, but that’s not the end of the inquiry.

Section 17.01 of Rev. Proc. 2018-58 provides that taxpayers get the relief provided in Section 17 if an IRS News Release or other guidance provides relief for acts listed in the revenue procedure (unless the new release or other guidance specifies otherwise).  Section 17.02(1) states that the 1031 time sensitive acts are postponed 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, which is later.

Reading the notice and revenue procedure together, the obvious question is which extension is applicable – July 15, 2020 or 120 days?

Notice 2020-23 has much broader coverage than Rev. Proc. 2018-58.  The revenue procedure is focused upon disaster relief provided to taxpayers in certain areas, whereas Notice 2020-23 applies to basically everyone.  Also, of some concern is the fact that federally declared disaster relief notices typically are used to provide location-based coverage for taxpayers under Rev. Proc. 2018-58 but generally do not provide their own specific deadline extensions for 1031 exchanges. In this case, however, Notice 2020-23 both explicitly references Rev. Proc. 2018-58 and provides specific time extensions to July 15, 2020.

Reading the two sections of Section 17 of Rev. Proc. 2018-58 together, some practitioners are suggesting that Notice 2020-23 did specify “otherwise” as to the timing of the extension within the meaning of Section 17.01, leading to the conclusion that the Section 17 relief is unavailable to exchangers.

In summary, it’s safe to conclude that the July 15, 2020 extension date is available, but those exchangers who need the 120-day extension period may find themselves in a “gray” area should they decide to rely on Section 17 instead.

Hopefully further clarification on this important issue is forthcoming!

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