In response to the challenges faced by taxpayers as a result of the COVID-19 pandemic, the IRS issued Notice 2020-23 on April 10, 2020, which extends many tax filing and payment due dates to as late as July 15, 2020. Notably, this guidance includes deadlines associated with like-kind property exchanges under Section 1031 and investments in Qualified Opportunity Funds (QOFs) under the Qualified Opportunity Zone (QOZ) regime.
A like-kind exchange is a tax-deferred transaction that allows for the disposal of an asset, typically real property, and the subsequent acquisition of another similar asset without generating capital gains tax liability from the sale of the initial asset. QOFs allow taxpayers to invest qualified capital gains into real property or businesses located in QOZs, and to defer and partially reduce taxation on the original capital gain while potentially eliminating all taxation on appreciation while in the QOF.
Under Notice 2020-23, any person with a specified federal tax payment obligation or a federal tax return or other form filing obligation that would otherwise be due to be performed (originally or pursuant to a valid extension) on or after April 1, 2020 and before July 15, 2020 is deemed to be an affected taxpayer eligible for the later due date. The Notice also lists time-sensitive actions that may be similarly deferred until July 15, 2020, one of which is the investment in a QOF in conjunction with an election to exclude from gross income amounts invested in QOFs within 180 days of an exchange, as permitted by Section 1400Z-2(a)(1)(A).
Time-sensitive actions also include those listed in Revenue Procedure 2018-58, which lists time-sensitive acts whose performance may be postponed under Section 7508A (relating to presidentially-declared disasters). On March 13, 2020, the President issued an emergency declaration in response to the ongoing COVID-19 pandemic. Under Notice 2020-23, with respect to like-kind exchanges, if the last day of either (i) the 45-day identification period; (ii) the 180-day exchange period; or (iii) a period set forth in a qualified exchange accommodation arrangement falls on or after April 1, 2020 and before July 15, 2020, then those deadlines are deferred to July 15, 2020.
At this time, it is unclear whether the 45- and 180-day deadlines for like-kind exchanges would be extended for 120 days, as under Revenue Procedure 2018-58, or to July 15, regardless of the original deadline. The former would probably provide more relief for most taxpayers. Since significant uncertainty exists, participants in Section 1031 transactions should adhere to the July 15 deadline provided by the Notice and assume it will control, absent further clarification from the IRS.