IRS extends 1031 deadlines due to a RARE special circumstance

In a VERY rare move, the IRS granted deadline extensions to some taxpayers for their 1031 exchanges. The IRS granted the extensions due to the hardships caused by Hurricane Charley and Tropical Storm Bonnie.

The IRS doesn't make the rules, but is required to enforce them. It's like a traffic cop monitoring people evacuating an area where a storm is approaching; he can't change the speed limit, but he can choose to extend grace to victims by not writing the ticket. In this special circumstance, the IRS has chosen not to enforce tax deadlines in 26 select Florida counties.

Normally in a Section 1031 exchange, a taxpayer/exchanger must properly identify their replacement or New Property within 45 days of the closing of their relinquished or Old Property. Then they must close on the purchase of exchange property(ies) within 180 days from the date of their closing on the sale of their Old Property. Federal tax code allows no exceptions to these deadlines! However, the IRS enforces the tax code, and can grant extensions of the deadlines by simply not enforcing them until a later date. Such is the case here.

The IRS recently announced that it has granted tax relief for taxpayers in 26 Florida counties, including relief for exchangers from their 45 and 180-day exchange deadlines. The relief period runs from August 11, 2004 to October 15, 2004. From our reading of the announcement, any 45 or 180 day deadline occurring between these two dates may be eligible to be extended until October 15.

We urge anyone who might be affected by this announcement to consult with an independent tax and/or legal advisor. In this instance especially, the relief provisions are not entirely defined and each situation may require careful consideration of the available options. For further information from the IRS directly, you may refer to the following information posted on the IRS website:

    
Tax Relief: Presidentially Declared Disaster Areas
IRS Grants Tax Relief for Tropical Storms¡ Victims
IR-2004-108, Aug. 16, 2004 (Updated 8/24/04 to add Flagler County)

Remember: grace is free but it isn't cheap. The traffic cop can still write the ticket if the evacuee is taking advantage of the storm by going 100mph.

If you have any further questions about this, you may also call a consultant at The 1031 Exchange Experts, toll-free at 866-694-0204 to get more information.

More good news (tax-wise) for hurricane-affected taxpayers

Hurricanes continue to plague Florida and the eastern United States, and our hearts go out to those of you who have been affected by them.

One small bit of good news is that the IRS continues to recognize the effects of the hurricanes upon the affected areas, and has offered taxpayers more relief from deadlines as a result. Due to the widespread nature of the storms, tax relief now applies to taxpayers in parts of Florida, Alabama, Louisiana, Mississippi, Georgia, North Carolina, Pennsylvania, Virginia, and West Virginia.

In the 1031 exchange context, this relief includes an extension of time to complete identification of replacement property (which normally must be completed 45 days after the closing of the sale of relinquished property) and to complete (close) the purchase of replacement property (which normally must be completed 180 days from the relinquished property sale closing).

We again note that the exact details of the relief offered from the IRS are unclear. Generally, this relief applies if your principal residence is located in a Presidentially Declared Disaster Area, but the IRS also has the power to include other persons affected by the disaster within the relief offered. If you have specific questions about how the relief provisions work, or about eligibility for the relief, The Experts are available to help answer any questions we can. We also strongly recommend that any affected taxpayer consult with a legal or tax advisor prior to making any decisions affecting tax payment (including the effect of the relief on specific 1031 exchanges).