IRS Provides Time Extensions for Taxpayers in Disaster Areas
Internal Revenue Code sections 7508 and 7508(A) each provide a list of time sensitive acts that are automatically postponed for taxpayers serving in the military and which may be postponed for taxpayers affected by Presidentially declared disasters. Revenue Procedure 2007-56 is the latest in a string of Revenue Procedures issued by the IRS that clarify and expand the taxpayers and acts eligible for postponement and add extensions to time deadlines specifically relating to 1031 exchanges.
The Revenue Procedure: (1) provides a time extension of either 120 days or to the last day of the authorized general extension period, whichever is later; (2) provides extensions to the reverse exchange deadlines; and (3) clarifies who would qualify for the extensions. The additional time is added on to the last day of the applicable 45-day identification period or 180-day exchange period for both forward and reverse exchanges. The 120-day extension also applies to the 5-day timeframe taxpayers have to enter into a qualified exchange accommodation agreement when doing a reverse exchange. The time extension applies if the last day of the relevant time period falls on or after the date of the declared disaster. For example, if the IRS issues a Notice specifying that a Presidentially declared disaster began on October 21st, then any applicable time frames that began prior to this date but expired on or after the 21st would be extended.
Specific criteria must be met in order for the taxpayer to benefit from the time extension. The Revenue Procedure provides that an affected taxpayer qualifies for a postponement of the deadlines only if:
- the relinquished property was transferred on or before the date of the Presidentially declared disaster, or the transfer to the exchange accommodation titleholder was completed in a reverse exchange before that date; and
- the exchanger has difficulty meeting the exchange deadlines because:
- the relinquished or replacement property is located in the disaster area;
- the principal place of business of any party to the transaction is located in the disaster area;
- any party to the transaction (or an employee involved in the 1031 exchange) is killed, injured, or missing as a result of the disaster;
- a document prepared in connection with the exchange or a relevant land record is destroyed, damaged or lost as a result of the disaster;
- a lender decides not to fund the loan, or is unable to fund the loan due to lack of flood, disaster or hazard insurance; or
- a title company cannot provide title insurance due to the disaster.
The 120-day extension also applies if an already identified replacement property or an identified reverse exchange relinquished property is substantially damaged in the disaster.
The time extensions do not automatically apply to any disaster; they only apply if the IRS issues a Notice or News Release and if the taxpayer falls within the designated criteria. Historically these notifications have been rare, but their frequency has increased in recent years. A record 81 notices were issued in 2010, with 34 issued through April of 2011. Extensions have been granted recently to taxpayers affected by storms, tornados and flooding in Tennessee, North Carolina, Mississippi, Georgia, Oklahoma, Missouri, Alabama and Arkansas. Recent Notices and News Releases can be found on the IRS website at: https://www.irs.gov/newsroom/tax-relief-in-disaster-situations
You can be an “affected taxpayer” even if you reside outside the disaster area. Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a listed deadline are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.
The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. Affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.