November 2012

DISASTER RELIEF – QUALIFYING FOR TAX EXTENSIONS

From time to time we are asked “Can I have more than the specified 180 days to close on my exchange
replacement property?” The answer has always been “No”. Failure to comply with the statutory deadlines will
result in a failed exchange. No extension is permitted in a situation involving a single taxpayer’s inability to
comply with the exchange deadlines. However, in recent years, the government has recognized the inability of
some taxpayers to comply with tax filing deadlines as a consequence of catastrophic events which affect large
numbers of people, such as terrorist actions, hurricanes, tornados, wildfires and floods.

Section 17 of Revenue Procedure 2007-56 provides postponement provisions specific to §1031 exchange
deadlines that apply in the case of federally declared disasters (sometimes referred to as Presidentially declared
disasters), but only if the IRS issues an official notice. That section extends the 45 and 180-day periods in
forward and reverse exchanges (that fall on or after the date of a federally declared disaster) by the later of 120
days or the date specified in the relevant IRS News Release (Tax Relief Notice), but not beyond the due date for
filing the tax return for the year of the transfer.

In the aftermath of an event, the IRS will issue a Tax Relief Notice identifying counties state by state which have
been declared disaster areas. The IRS frequently updates Disaster Relief Notices on its website,
http://www.irs.gov/uac/Tax-Relief-in-Disaster-Situations, to include additional affected counties. Note that the
Tax Relief Notice must specifically state that it provides relief under §17 of Rev. Proc. 2007-56 in order for the
notice to apply to like-kind exchanges. Also note that FEMA disaster notices, which are typically published well
before IRS Tax Relief Notices, do not have any effect upon exchange deadlines.

The most recent natural disaster was Hurricane Sandy. The IRS has set up a special website specifically for
notices related to Hurricane Sandy: http://www.irs.gov/uac/Newsroom/Help-for-Victims-of-Hurricane-Sandy.
To qualify for an extension of the §1031 deadlines, the relinquished property must have been transferred on or
before the date of the federally declared disaster; AND the exchanger must be an “affected taxpayer” OR has
difficulty meeting the exchange deadlines due to one of the following disaster-related reasons:

1) The Relinquished or Replacement property is in the covered disaster area;
2) The principal place of business of any party to the transaction is in the disaster area (i.e. Qualified Intermediary, Exchange Accommodation Titleholder, Settlement Agent, Lender, Title Insurer);
3) Any party to the transaction is killed, injured or missing;
4) Documents relating to the exchange or transaction are destroyed, damaged or lost;
5) The lender will not fund because of the disaster; or
6) Title, hazard, flood or other such insurance is no longer available for that property.

An “affected taxpayer” is specifically described in the IRS Tax Relief Notice, but is usually defined as one whose
primary residence or principal place of business is located within the disaster zone. Accordingly, taxpayers may
qualify for an extension if their residence is in the covered area, even though their exchange property is not!

Disaster declarations are issued more frequently than one may think. Less publicized, yet equally devastating
local events have been granted extensions. The IRS automatically identifies taxpayers located in the covered
disaster area and applies automatic filing and payment relief. However, those affected taxpayers located
elsewhere must call the IRS disaster hotline listed in the Tax Relief Notice to request this tax relief.

Additionally, it is important to note that in order for the taxpayer involved in an exchange to take advantage of
these disaster relief options, the exchange agreement must include language to allowing for extensions in the
event of federally declared disasters.

The rules related to qualifying for a disaster extension can be complicated and a taxpayer should always seek
advice from a competent tax advisor regarding entitlement to the extension. If you or your client is in need of
direction to the most current IRS Disaster Relief information, please contact your local IPX1031® office.

We, at IPX1031®, pride ourselves on not only being the industry leader in service and security, but we also
strive to help our clients and their advisors keep current on tax issues pertaining to §1031
exchanges and applications for them. We aim to be your complete information resource. For more information
about us or our complimentary monthly webinars about 1031 exchanges, visit our website at www.ipx1031.com.

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