The IRS and FTB have recently granted additional tax relief to eligible Californians due to the winter storms. As provided in our January announcement, federal and state tax relief measures were enacted to give Californians until May 15, 2023 to file individual and business tax returns and make required payments. The deadline has now been further extended to October 16, 2023.
Affected taxpayers qualify for an automatic extension until October 16, 2023 to file individual and business tax returns and make certain payments, including the following:
- Individuals whose tax returns and payments are due on April 18, 2023;
- Quarterly estimated tax payments due January 17, 2023, April 18, 2023, June 15, 2023, and September 15, 2023;
- Business entities whose tax returns are normally due on March 15 and April 18; and
- California Passthrough Entity Elective Tax payments due on June 15, 2023.
Accordingly, tax payments made by the October 16, 2023 deadline can be made without penalty.
In addition to the tax filing and payment deadline extension, the IRS has further extended the 45- and 180-day deadlines for IRC §1031 exchange transactions. Please see below for additional information on eligibility, affected taxpayers, declared disaster areas, IRC §1031 exchange and other considerations.
Who Is Eligible?
- Any individual or business affected by the California storms and are included in the covered disaster area.
Who Is An Affected Taxpayer?
- Any individual whose principal residence is located in a covered disaster area;
- Any business entity or sole proprietor whose principal place of business is located in a covered disaster area;
- Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a covered disaster area;
- Any individual whose principal residence, or any business entity or sole proprietor whose principal place of business is not located in a covered disaster area, but whose records necessary to meet a deadline for an act specified in paragraph (c) of this section are maintained in a covered disaster area;
- Any estate or trust that has tax records that are maintained in a covered disaster area;
- The spouse of an affected taxpayer, solely with regard to a joint return of the husband and wife; or
- Any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose records necessary to meet a deadline for an act specified in paragraph (c) of this section are located in the covered disaster area;
- Any individual visiting the covered disaster area who was killed or injured as a result of the disaster; or
- Any other person determined by the IRS to be affected by a federally declared disaster (within the meaning of section 1033(h)(3)).
What Is The Covered Disaster Area?
- Residents and businesses in Alameda, Colusa, Contra Costa, El Dorado, Fresno, Glenn, Humboldt, Kings, Lake, Los Angeles, Madera, Marin, Mariposa, Mendocino, Merced, Mono, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Benito, San Bernardino, San Diego, San Francisco, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Tulare, Ventura, Yolo, and Yuba counties who have been affected by severe winter storms, flooding and mudslides are eligible for tax relief.
- The covered disaster area does not include residents and business in Imperial, Kern, Lassen, Modoc, Plumas, Shasta, and Sierra counties.
What Are The Extended Deadlines For IRC §1031 Exchange Transactions?
- The extensions are for 1031 exchange-related deadlines falling on or after the January 8, 2023 disaster date through the General Postponement Date of October 16, 2023. Deadlines for exchanges beginning on or after the disaster date are postponed to the General Postponement Date.
- The extensions permit eligible persons who began an IRC §1031 exchange between November 24, 2022 through January 8, 2023 to extend the 45-day identification period to the later of October 16, 2023 or 120 days after the original 45-day deadline date.
- The extensions permit eligible persons who began an IRC §1031 exchange between July 12, 2022 through January 8, 2023 to extend the 180-day exchange period to the later of October 16, 2023 or 120 days after the original 180-day deadline date.
- It is important to note that the deadline cannot be extended beyond one year or the due date (including extensions) of the tax return for the year of the disposition of the relinquished property.
- Example #1 – If a relinquished property is transferred on August 1, 2022, the 45-day identification deadline would be unaffected as it occurred before November 24, 2022. The 180-day replacement deadline would be extended from January 28, 2023 to October 16, 2023.
- Example #2 – If a relinquished property is transferred on December 27, 2022, the 45-day identification deadline would be extended from February 10, 2023 to October 16, 2023. The 180-day replacement deadline would be extended from June 25, 2023 to October 16, 2023 for a calendar year taxpayer.
- Example #3 – If a relinquished property is transferred on January 7, 2023, the 45-day identification deadline would be extended from February 21, 2023 to October 16, 2023. The 180-day replacement deadline would be extended from July 6, 2023 to November 3, 2023.
What Are The IRC §1031 Covered Transactions?
- Covered transactions include forward exchanges, wherein the relinquished property was transferred by no later than January 8, 2023, and reverse exchanges, wherein the titleholder acquired the replacement property or the relinquished property, as applicable, by no later than January 8, 2023.
- Covered exchange transactions involve individuals who live, and businesses whose principal place of business is located in the covered disaster area. Affected taxpayers are entitled to relief regardless of where the relinquished property or replacement property is located.
- If the individual or business is not in the covered disaster area, they can still obtain relief if the relinquished property or replacement property is located in the covered disaster area, of if the principal place of business or any party to the transaction (i.e. Qualified Intermediary, Exchange Accommodation Titleholder, transferee, settlement attorney, lender, financial institution, or a title insurance company) is located in the covered disaster area.
How To Apply?
- The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.
- In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.
If you have any questions on the recent federal and state tax relief for Californians and how this may impact you or your business, please do not hesitate to reach out to us for assistance.