1031 exchange:
Hurricane Katrina

IR-2005-84 ( 08/30/05 )

Portions of Louisiana (31 parishes), Mississippi (15 counties), and Alabama (3 counties) are eligible for special tax relief.

Taxpayers involved in 1031x transactions may be eligible for an extension of their "time sensitive deadlines" under Notice 2005-3. A 120 day (for IRC 1031 transactions) extension is granted under its General Rule extension.

"Time sensitive acts" include (1) the 45 day identification deadline and the 180 day exchange deadline for delayed exchanges A taxpayer qualifies for the extension if (a) the relinquished property was transferred on or before the disaster declaration; and (b) the taxpayer is an "affected taxpayer" or has difficulty meeting the time deadlines due to the disaster.

"Affected taxpayers" include individuals and businesses located in the disaster area, those whose tax records are located in the disaster area, and relief workers. Reasons for having "difficulty meeting the time deadlines due to the disaster" include:

1. The relinquished or replacement property is in the disaster area;

2. The principal place of business of one of the parties involved in the exchange is located in the disaster area, specifically mentioned as parties are the QI, EAT, transferee, settlement attorney/agent, lender/financial institution, and title insurer;

3. Any party to the transaction (or an employee involved in the transaction) is killed, injured, or missing as a result of the disaster;

4. A document prepared in connection with the exchange (i.e., Exchange Agreement or an assignment or deed) or a relevant land record (i.e., documents at the Recorder's Office?) is destroyed, damaged, or lost as a result of the disaster;

5. A lender decides to permanently or temporarily suspend funding of loans for real estate closings due to the disaster or due to the unavailability of flood, disaster, or other hazard insurance due to the disaster;

6. A title insurer is unable to provide a required title insurance policy at closing due to the disaster; and

7. Any similar reason.

Additionally, Notice 2005-3 permits a 120 day postponement, for delayed exchanges, of the 180 day exchange deadline if, after the end of the 45 day identification period, the identified replacement property is "substantially damaged" or, in the case of a safe harbor reverse exchange, the identified relinquished property is substantially damaged.

Sincerely,
Steve Hickox
Attorney / President

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