IRS Extends Investment Deadline For Qualified Opportunity Zone Investors, Provides Tax Relief For Qualified Opportunity Funds
By George Moffa and Moshe Gruber
June 18, 2020
The IRS has released Notice 2020-39, providing relief to opportunity zone investors amid the ongoing COVID-19 pandemic. The Notice extends the investment deadline for certain investors to December 31, 2020, provides relief to Qualified Opportunity Funds (“QOF”) failing to meet the 90% investment threshold, and extends various safe harbors provided for under Treasury regulations.
180-Day Investment Requirement
IRC Section 1400Z-2 allows taxpayers to elect to defer eligible gains by investing in a qualified opportunity fund within 180 days of realizing the gain. For gains realized through a passthrough entity, final regulations issued in December 2019 allow taxpayers to begin the 180-day period at either the end of the flow-through entity’s taxable year, the date the entity recognized the gain, or on the un-extended due date of the return reporting the gain. The Notice extends the deadline to December 31, 2020 for taxpayers whose 180th day would have fallen between April 1, 2020 and December 31, 2020.
90% Investment Requirement
Under 1400Z-2, QOFs are subject to semiannual tests at the end of each 6-month period to meet the 90% qualified opportunity zone investment requirement. The guidance provides that failure to meet the threshold on test dates occurring from April 1, 2020 to December 31, 2020 is considered due to reasonable cause as provided under the Internal Revenue Code. Consequently, the QOF would continue to qualify without being liable for statutory penalties. This relief is automatic and the appropriate reporting on Form 8996 is specified in the guidance.
Substantial Improvements, 31-Month Safe Harbor for Working Capital, and Reinvestment Period
The Notice further provides that the period between April 1, 2020 and December 31, 2020 will not be counted towards the 30-month substantial improvement requirement for eligible acquired zone property. Additionally, as a result of the Federal Emergency Declaration, the 31-month safe harbor for working capital was extended by no more than an additional 24 months if such period begins prior to December 31, 2020. Finally, if any QOF’s 12-month reinvestment period includes January 20, 2020 (the Major Disaster Declaration date), the QOF receives up to an additional 12 months to reinvest proceeds received from the sale or disposition of zone property.
The COVID-19 pandemic has prevented many taxpayers from meeting statutory and regulatory deadlines. This Notice is the latest in a series issued by the IRS extending deadlines, providing taxpayers and investors with additional flexibility and planning opportunities related to the QOF program.
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