<p><span style="font-family:Arial,Helvetica,sans-serif;">A <a href="https://www.accruit.com/sites/default/files/LKE%20Coalition%20letter%20…; target="_blank">second&nbsp;joint letter</a> from the like-kind exchange coalition, dated Apr. 20 requests clarification about <a href="https://www.irs.gov/pub/irs-drop/n-20-23.pdf">IRS Notice 2020-23</a> and whether Affected Taxpayers may use postponement provisions of Section 17 in Rev. Proc. 2018-58. &nbsp;&nbsp;</span></p>

<p><span style="font-family:Arial,Helvetica,sans-serif;">Section 17.02 provides in pertinent parts as follows:</span></p>

<p><span style="font-family:Arial,Helvetica,sans-serif;"><em>(1) The last day of a 45-day identification period and the last day of a 180-day exchange period that fall on or after the date of a federally declared disaster 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, whichever is later. However, in no event may a postponement period extend beyond: (a) the due date (including extensions) of the taxpayer’s tax return for the year of the transfer (See §1.1031(k)-1(b)(2)(ii); or (b) one year (See section 7508A(a)).</em></span></p>

<p><span style="font-family:Arial,Helvetica,sans-serif;">The letter also requests that March 13, 2020 be deemed to be the beginning date of disaster relief for 1031 exchanges and that each day of the disaster period from March 13 to July 15 be treated as the date of the federally declared disaster.</span></p>

<p><span style="font-family:Arial,Helvetica,sans-serif;">Further, the FEA asked that if the end of the 45-day identification period or the end of the 180-day exchange period falls within the disaster period, that the deadlines to complete both of those actions be extended by 120 days or to July 15, 2020, whichever is later.</span></p>

<p><span style="font-family:Arial,Helvetica,sans-serif;">Lastly, we will need to wait and see whether we receive any opinion on if the extension provisions are mandatory or permissive.&nbsp; The language in IRS 2020-23 automatically extends the 45 &amp; 180 day periods until July 15.&nbsp; We hope to obtain some clarity from the IRS about whether the taxpayer can elect to take the extension or conclude the exchange on such earlier date that the exchanger would have otherwise been able to.&nbsp; &nbsp;&nbsp;&nbsp;</span></p>

<p><span style="font-family:Arial,Helvetica,sans-serif;">We will continue to keep up-to-date&nbsp;on all new information or documentation received in response to the joint letter dated April 20.&nbsp; If you have questions about your exchange transactions, please contact your exhange manager or call us at 800-237-1031.</span></p>

<p>March 31st we <a href="/blog/extension-1031-exchange-deadlines-due-covid-19-crisis">posted a blog providing detailed information regarding a request from a coalition of interested real estate groups to the IRS</a> to provide some relief to taxpayers on mandated exchange deadlines. &nbsp;On April 9, 2020, the IRS issued <a href="https://www.irs.gov/pub/irs-drop/n-20-23.pdf">Notice 2020-23 Providing Additional Relief for Taxpayers Affected by the COVID-19 Pandemic</a>.&nbsp; Affected Taxpayers performing Section 1031 exchanges are included in the amplified relief.&nbsp; Among other subjects, this Notice extends the 45-day identification period and the 180-day exchange period for taxpayer/exchangers whose deadlines were due on or after April 1, 2020. The deadlines for those exchangers to identify replacement property and/or acquire replacement property are now July 15, 2020.&nbsp; It is important to note there is no retroactive effect if a taxpayer’s 45-day identification deadline and 180-day exchange period ended before April 1, 2020.&nbsp; Many expected the relief would be retroactive to an earlier time when the effect of the virus was making adherence to the deadlines difficult but such is not the case.</p>

<p>Section 1031 rules require potential replacement properties to be timely identified on or before midnight of the 45th day following the sale of the relinquished property.&nbsp; The taxpayer must then close on the purchase of the designated replacement property within 180 days of the relinquished property sale.&nbsp;</p>

<p>Accruit has <a href="/blog/how-federally-declared-disasters-affect-1031-exchanges">previously provided a summary of the rules</a> pertaining to extensions of exchange transactions due to federally declared disasters.&nbsp;However, Notice 2020-23 is somewhat confusing to taxpayers and their professionals because it is not written like previous Disaster Relief Notices.&nbsp; Particularly, Notice 2020-23 does not expressly reference Section 17 of Rev. Proc. 2018-58.&nbsp; In the absence of an express reference to Section 17, it appears the normal 120-day extension from the date of the federally declared disaster does not apply to the current COVID-19 pandemic.&nbsp;</p>

<p>While this may not be the relief for which many taxpayers hoped, Accruit is thankful the IRS acted quickly on the letter request directed to IRS/Treasury in late March by the coalition including the <a href="https://www.1031.org/">Federation of Exchange Accommodators (FEA)</a>, of which Accruit is a member.&nbsp; At this time we don’t know whether Notice 2020-23 will be the final guidance the IRS issues related to the 45-day identification period and the 180-day exchange period.&nbsp; Though the Notice provides some relief to taxpayers with pending exchanges, &nbsp;several issues are left unresolved or unclear.&nbsp; Accruit’s representatives on the Government Affairs Committee of the FEA, are working with others to seek clarification regarding some of the open items and possibly request the IRS change the start date of the extension to January 20, 2020 (the date of the FEMA disaster declaration) or March 13, 2020 (the date of the Stafford Act/FEMA declaration).&nbsp;</p>

<p>If you have any specific questions about this relief, please contact your client service person at Accruit.&nbsp; The information contained in this article is not to be considered tax or legal advice and taxpayers should consult independent counsel with regard to the particular matter; however, Accruit will continue to monitor the situation closely and share any information on further extensions or modifications as soon as they become available. You may also continue to check on Accruit’s website for any further updates.</p>

<h2>IRS Notice 2020-23 Provides Some Relief for Taxpayers Affected by the COVID-19 Pandemic</h2>

<p>On April 9, 2020, the <a href="https://www.irs.gov/pub/irs-drop/n-20-23.pdf&quot; target="_blank">IRS issued Notice 2020-23</a> Providing Additional Relief for Taxpayers Affected by the COVID-19 Pandemic. Affected Taxpayers performing Section 1031 exchanges are included in the amplified relief. Among other subjects, this Notice extends the 45-day identification period and the 180-day exchange period for taxpayer/exchangers whose deadlines were due on or after April 1, 2020. The deadlines for those exchangers to identify replacement property and/or acquire replacement property are now July 15, 2020. It is important to note that there is no retroactive effect if the 45-day identification deadline and 180-day exchange period were before April 1, 2020.</p>

<p>While this may not be the relief for which many taxpayers may have hoped, Accruit is thankful the IRS acted quickly on the letter request directed to IRS/Treasury in late March by a coalition of many traded associations including the <a href="https://www.1031.org/&quot; target="_blank">Federation of Exchange Accommodators</a>, of which Accruit is a member. If you have any specific questions about this relief, please contact your client service person at Accruit by calling 800-237-1031.</p>

<p>Read more about why this <a href="https://www.accruit.com/blog/extension-1031-exchange-deadlines-due-covi…; target="_blank">deadline extension request was made</a>. Accruit continues to monitor <a href="/services/1031-exchange">1031 exchange</a> deadline extensions due to COVID-19 on both a state and federal level through the Department of Treasury and IRS.</p>

<p><img alt="" src="https://www.accruit.com/sites/default/files/files/high-rise-apartments-…; style="width: 200px; height: 300px; float: left; margin-left: 10px; margin-right: 10px;" />As a real estate investor, you may be wondering how to reduce the hassles of property management, defer capital gain and depreciation recapture taxes, potentially maintain or even increase your net cash flow, and finally retire with more free time! Arlington Capital’s Wealth Management Process is designed to advise accredited* real estate investors on 1031 exchanges into passive real estate investments.</p>

<p>This Delaware Statutory Trust (DST) webinar is presented by Arlington Capital Management and will Jordan Born, Senior Director at Accruit, on the panel.</p>

<p>Date: Thursday, April 2, 2020</p>

<p>Time: 11:00 AM MDT</p>

<h3 class="rtecenter">&nbsp;</h3>

<h2>Accruit, LLC is closely monitoring any 1031 exchange deadline extensions due to COVID-19 on both a state and federal level through the Department of Treasury and IRS.&nbsp;</h2>

<p>On March 23, 2020, a real estate coalition, including but not limited to, the Federation of Exchange Accommodators (FEA), of which Accruit is a Board level member, sent a <a aria-label="Letter to Department of Treasury" href="/sites/default/files/Real Estate Letter to Treasury Requesting Like-Kind Exchange Deadline Relief.pdf" target="_blank" title="Letter to Department of Treasury">joint letter to Treasury Secretary Steven Mnuchin</a> and other policy makers at the Treasury Department and IRS requesting guidance to delay the deadlines applicable to 1031 like-kind exchanges that are currently underway due to the COVID-19 crisis. The signatories to the joint letter dated March 23 include twenty-one associations representing a broad spectrum of the real estate industry, such as qualified intermediaries, property owners and operators, investors, lenders, title insurers and closers, realtors and others concerning all asset classes. The March 23 joint letter specifically requests that deadlines to identify replacement property and/or complete like-kind exchanges should be extended to the later of 120 days or to the last day of the general disaster extension period authorized by an IRS News Release or other guidance, similar to the relief described in Section 17 of Rev. Proc. 2018-58 and authorized under IRC § 7508A which has been historically used for regions hit by natural disasters like tornadoes or hurricanes.</p>

<p>Also, <a aria-label="Notice 2020-18 Covid Relief" href="/sites/default/files/Notice%202020-18%20postponement%20of%20filing%20%20payment%20of%202019%20tax%20returns.pdf" target="_blank" title="Notice 2020-18 Covid Relief">IRS Notice 2020-18</a> automatically extended the time for filing of federal tax returns and payment of federal income tax payments to July 15, 2020. This Notice expands the extension to any Taxpayer (including individuals and entities) that have a federal tax payment or a federal income tax return due April 15, 2020. Affected Taxpayers do not have to file Forms 4868 or 7004 to receive the extension, and there is no limitation on the amount of the payment that may be postponed.</p>

<p>On a state level, California was the first to take action. The California Franchise Tax Board (CA FTB) has <a href="https://www.ftb.ca.gov/about-ftb/newsroom/news-releases/2020-3-state-po…; target="_blank">extended the due dates</a> for multiple taxes, including non-wage withholding, to July 15, 2020 due to COVID-19. This extension includes the filing of Form 593 and payment of real estate withholding per Form 593-V.</p>

<p>The signatories of the joint March 23 letter are awaiting written guidance from the IRS in response to the request for extensions. Currently, the regular deadlines remain in place. The disaster provisions have been used many times to extend 1031 guidelines in the past, and we are hopeful the IRS will fall back on the existing procedures once it issues formal guidance. We are keenly aware that it is hard to be patient; however, this is an unprecedented upheaval for every sector.</p>

<p>Relief for our 1031 exchange clients is paramount to all of us. Although the information contained in this article is not to be considered tax or legal advice and taxpayers should consult independent counsel with regard to the particular matter, Accruit will timely respond to our clients with any questions about their pending exchanges, continue to monitor the situation very closely and share any information on extensions as soon as it becomes available. You may continue to check on Accruit’s website for any further updates.</p>

<p>Section 1031 of the Internal Revenue Code provides taxpayers the ability to swap investment or business use real property for other like-kind property without realizing the gain, While these exchanges have been used for years by the most prudent of investors, they continue to gain traction due in part to the appreciation of real estate values. Executing a 1031 exchange can enable you to manage your real estate portfolio in a tax-efficient manner, allowing you to defer a portion or all of the taxable gains as your assets evolve. There's no limit to the number of times you can do a 1031 exchange – you can defer the gain from one piece of real estate to another, again and again. You may increase your portfolio value with each swap, but you defer the tax until you cash out only then realizing your gain.</p>

<p>The Tax Code isn’t known for its simplicity, but it’s in the details where many investors find tremendous opportunities. Revenue rulings and other administrative rulings issued by the Internal Revenue Service &amp; U.S. Treasury provide direction on various factual situations. These rulings are often relied on as precedent by taxpayers and their advisors. Revenue Procedure 2000-37 offers guidelines for taxpayers to acquire replacement property before the sale of their relinquished property. Referred to as “reverse exchanges”, this ruling goes on to inform a taxpayer they cannot own both properties at the same time, thus a “parking arrangement” must be employed - either the relinquished property or the replacement property is acquired and “parked” by an Exchange Accommodation Titleholder (also, known as an ‘EAT’). To park title means the deed of a parked property is recorded, evidencing a transfer of ownership to the EAT.</p>

<p>What does this mean? In the instance where the EAT acquires title to the replacement property, it typically does so with funds the taxpayer lends to the EAT – in most cases the taxpayer borrows to afford such an acquisition. Within 180 days, the <a href="https://www.accruit.com/blog/are-1031-reverse-tax-deferred-exchanges-re… sells the relinquished property and ownership of the replacement property is transferred to the taxpayer</a>.&nbsp;This provides taxpayers an ideal solution if they cannot delay the closing of the replacement property.</p>

<p>“The reverse exchange helps investors meet several objectives…” says Martin Edwards, JD and Managing Director at Accruit. “…some are deterred by the 45-day identification period with a traditional tax-deferred exchange but implementing a parking arrangement minimizes risk while allowing an exchanger to find and secure the best property before disposition of their relinquished property.”</p>

<p>Many consider a seller’s market (where supply is low and demand is high) the typical situation in which to implement a reverse exchange, but in fact, its application is used in a variety of market conditions. Max Hansen, JD, CES and Managing Director at Accruit says, “as we know and from 30 years of experience, markets are cyclical…real property investors can feel pressure to perform when conditions are in favor of the seller, just as much as they may feel the same pressure when it’s a buyer’s market.”&nbsp;</p>

<p>It’s the savvy real estate investors who spot fortuitous gain irrespective of which course the economy takes. Stock market volatility adds to an investor's woes if stock prices are in flux. On the other hand, real estate's relatively low correlation to stock market movements can make it a more reliable choice during a downturn, but it’s the quality of a property investment that dictates how well it performs in contrast to other securities.</p>

<p>Over a decade ago, the 2008 financial crisis and subsequent downturn that followed, saw a surge in reverse exchanges as investors sought to take advantage of low-interest rates, create wealth-building opportunities and make advantageous acquisitions. Many of those acquisitions are now paying dividends in today’s market. Despite what the current real estate environment may be, reverse exchanges can still be a powerful tool providing certainty during these uncertain times. There’s an old investing adage, that says past performance isn’t a guarantee of future performance, but real estate can prove profitable when stocks and bonds waver.</p>

<p>For more information on reverse exchanges and parking arrangements, please contact <a href="https://www.accruit.com/contact-us&quot; title="Start an Exchange with Accruit">Accruit</a>.</p>