Investors in Qualified Opportunity Zones received some good news on Thursday, June 4th, 2020. The Department of the Treasury and Internal Revenue Service issued Notice 2020-39 extending various Qualified Opportunity Zone investing requirements. The most notable is the extension of the 180-day period capital gain investment requirement.
Qualified Opportunity Zone Background
The statute under I.R.C. § 1400Z-2 states that, generally, qualified capital gain must be invested into a Qualified Opportunity Zone Fund within 180 days after the income would have been recognized by the taxpayer. In most cases, this is the date of sale. The 180-day time period can be different for taxpayers who receive capital gain distributions and partners or shareholders who are allocated capital gains from flow-through entities.
I.R.C. § 7508A and the regulations thereunder allow the IRS to postpone certain deadlines and other time-sensitive acts. The IRS did just that starting March 18, 2020, the date the IRS starting releasing several notices postponing important tax deadlines for taxpayers due to the Coronavirus (COVID-19). One of those notices, IRS Notice 2020-23, postponed some of the deadlines for Qualified Opportunity Zone investing.
Key Relief Provisions
The Department of the Treasury and IRS recently issued Notice 2020-39 that extends further relief for QOZ investors. Here are the four key relief provisions:
- Further relief for the 180-day investment time period
- If the last day of the 180-day investment period for a taxpayer falls between April 1, 2020 – December 31, 2020, the taxpayer can use December 31, 2020 as the date to timely invest qualified capital gains funds into a QOZ Fund. This relief is automatic, no separate elections or paperwork needs to be sent to the IRS.
- Relief for Qualified Opportunity Zone Funds that do not meet the 90% asset test
- Taxpayers with certain 6-month testing periods ending between April 1, 2020 – December 31, 2020 will not be subject to the penalty for failure to meet the 90% asset test. They will automatically be considered to have reasonable cause for not meeting the test.
- 30-month substantial improvement requirement
- The time period between April 1, 2020 – December 31, 2020 is disregarded when determining if the 30-month substantial improvement requirement is met.
- Additional time for the QOZ Business working capital safe harbor
- Qualified Opportunity Zone Businesses can now add an additional 24 months to their 31-month working capital safe harbor period.
- 12-month reinvestment period
- QOZ funds can now receive an additional 12 months to reinvest proceeds from the sale of qualified opportunity zone property.
QOZ MAP: See the Opportunity Zones in Arkansas here.
Have questions?
These are welcome reliefs for Qualified Opportunity Zone investors. For more information regarding Qualified Opportunity Zones, please contact Landmark Tax Manager Mark Greco at 479-230-5408 or mgreco@landmarkcpas.com.