President Declares Disaster in Vermont
We have a Client in Vermont who wished to conduct a hybrid Section 1031 Exchange, consisting of both a direct exchange of Relinquished Property for identified Replacement Property (Case #1) AND an Improve-to-Suit Exchange where one or more of the Replacement Properties are to be improved with exchange funds before delivery to the Client (Case #3).
The Client’s exchange began in early June, meaning the 45th day (ID deadline) would occur in mid-July and the 180th day (end of the Exchange Period) would arrive in late November. The Client timely identified Replacement Properties in Vermont.
Enter Hurricane (later Tropical Storm) Irene, which hit the State over Sunday evening, August 28, 2011. As of this writing, eight (of fourteen) Vermont counties have been declared a Presidential Disaster Area, including the county containing our Client’s Replacement Properties. Roads in the area were washed out completely, and buildings and other properties were extensively damaged.
The origins of what happens now occurred on the occasion of September 11, 2001. As you will remember, the country basically shut down for seven or more days, and all business came to a halt. However, on September 11th and for the days thereafter, there were thousands of open Section 1031 Exchanges, and the IRS had absolutely no authority to extend any of the due dates; the affected taxpayers were essentially out of luck if they could not complete their exchanges on time.
What is not widely known is that upon the reconvening of Congress about 10 days after the terrorist attacks, its first order of business was to give the IRS retroactive authority to extend its time-sensitive due dates, including the 45 and 180 day deadlines in open Section 1031 Exchanges, for affected taxpayers.
The wording has been changed since then to determine who is affected, and now reads:
……….. taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers …. 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 are necessary to meet a deadline …. are in the covered disaster area, (and) 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 also gives affected taxpayers ….. the relief … pertaining to like-kind exchanges of property…….
So how does all of this affect our Client? Because the county in which the identified Replacement Properties are located is now part of a Presidentially Declared Disaster Area, any Section 1031 – related time deadline occurring after the date of the Declaration is automatically extended by 120 days. In our Client’s case, this means that the Exchange will end as a statutory matter in late March, 2012, not late November, 2011.
During the exchange process and on various conversations with Clients we have been repeatedly asked if there is any way to extend those pesky 45 or 180 day deadlines, and our answer has always been “No, not unless you can dial up a Presidentially Declared Disaster in the area of your Replacement Property or where you or your records reside.” Well, in this case, it actually happened………