Updated January 2022 due to IRS revisions/extensions
Hurricane Ida made landfall on August 29th, 2021, and the IRS issued tax relief to those who reside, or who have businesses located in specified FEMA disaster areas. The IRS published Relief Notices for certain geographic areas of New York, New Jersey, Pennsylvania, Connecticut and for the states of Louisiana, and Mississippi (“Notices”). The Notices extend the deadlines to file various individual and business tax returns/ deadlines and make tax payments for affected taxpayers, including those in Rev. Proc. 2018-58, which covers the deadlines applicable to Section 1031 like-kind exchanges. This means that Exchangers can potentially extend either their 45-day identification period, their 180-day exchange period, or both under Section 17 of the Rev. Proc.. Recently the IRS updated and revised the original Notices (from early September) for areas of six states below. The revisions extend both the disaster period and last day of the extension to cover September 1, 2021 to February 15, 2022. Initially, the original tax relief only extended deadlines until January 3, 2022.
Sections 4 and 17 of Revenue Procedure 2018-58 provide relief available to “affected taxpayers”, which is generally deemed an individual whose principal residence, or a business entity whose principal place of business, is located in the county specified in the Notice. See IRC 301.708A-1(d) for additional categories. Taxpayers are also advised to research state level disaster relief.
Section 4 Relief
Section 4 relief provides for an extension of certain deadlines falling “On or After” the specified date. The Notice will also specify an “Extension Date” detailing the type and duration of relief provided. The counties and applicable dates are currently as follows for the various states:
New York: Bronx, Dutchess, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond, Rockland, Suffolk, Sullivan, Ulster, Westchester, Nassau, Suffolk, Sullivan, Dutchess, Orange, Putnam, Rockland, and Ulster. Notice NY-2021-01
On or after date: September 1, 2021
Extension date: February 15, 2022 (revised as of 12/28/21)
New Jersey: Bergen, Essex, Gloucester, Hudson, Hunterdon, Mercer, Middlesex, Morris, Passaic, Somerset, Union, Warren. Notice NJ-2021-01
On or after date: September 1, 2021
Extension date: February 15, 2022 (revised as of 12/28/21)
Pennsylvania: Bedford, Bucks, Chester, Dauphin, Delaware, Fulton, Huntingdon, Luzerne, Montgomery, Northampton, Philadelphia, Schuylkill and York. Notice PA-2021-05
On or after date: August 31, 2021
Extension date: February 15, 2022 (revised as of 12/28/21)
Connecticut: The declaration includes Fairfield County, New Haven County, New London County, Mashantucket Pequot Tribal Nation, and Mohegan Tribal Nation. Notice CT-2021-05, November 3, 2021
On or after date: September 1, 2021
Extension date: February 15, 2022 (revised as of 12/28/21)
Louisiana: The declaration includes the entire state. Notice LA-2021-04
On or after date: August 26, 2021
Extension date: February 15, 2022 (revised as of 12/28/21)
Mississippi: The declaration includes the entire state. Notice MS-2021-02
On or after date: August 28, 2021
Extension date: February 15, 2022 (revised as of 12/28/21)
In summary, section 4 will extend certain deadlines (for 1031: 45-day or 180-day) falling on or after the specified “On or After Date”, postponing those deadlines to the specified “Extension Date” in a published IRS Notice or guidance.
Section 17 Relief
Additionally, section 17 provides that a taxpayer involved in a 1031 exchange may be eligible for a time extension of the 45-day and the 180-day deadlines for the later of 120 days or the extension date listed on the Notice. In addition to being an “affected taxpayer,” the Exchanger must have transferred their property to a buyer; or transferred “qualified indicia of ownership” to an Exchange Accommodation Titleholder pursuant to Rev. Proc. 2000-37 (i.e. a reverse exchange) on or before the date of the Federally declared disaster.
However, it is important to note that a taxpayer can qualify for “hardship” relief for a variety reasons, including, but not limited to: the relinquished or replacement property is located in the Federally declared disaster area; a lender will not fund the loan due to the disaster; or a title insurance company is not able to provide the necessary insurance policy to settle or close a real estate transaction due to the disaster. Therefore, at the discretion of the IRS, an exchanger can potentially qualify for the relief in Section 17, or other relief in a Notice that applies Section 17 to the disaster, even if all properties involved in the exchange are not in the disaster area. Based on the wording of the Rev. Proc., we believe that the location of a party itself will not justify relief absent other hardship that substantially delayed the transaction.
If the taxpayer meets the eligibility for relief under section 4 and 17, they are entitled to two extension options. First the exchange deadline is extended under section 6 to the later of the applicable state “Extension Date” or, under section 17, the 120th day after the deadline would have otherwise occurred. Note, the deadline cannot be extended for more than one year beyond the due date of the taxpayer’s return for the year of the exchange. Furthermore, the taxpayer is only eligible to modify a past identification, made prior to the disaster date, if an identified property was damaged by the disaster.
Eligibility for disaster extensions could vary on a case-by-case basis and the Covered Disaster Areas specified in IRS guidance are often updated over time. In the case of Hurricane Ida, over the course of the past several months, the IRS has expanded the disaster area and the disaster period. Exchangers and their advisors should carefully review any IRS and state guidance regarding disaster relief and make any determinations accordingly.
For the most up to date information on disasters see here:
IRS Tax Relief in Disaster Situations
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