The IRS has provided new relief for qualified opportunity zone (QOZ) investors and qualified opportunity funds (QOFs) in response to the ongoing COVID-19 pandemic.
180-Day Investment Window Opens Wider
On April 9, 2020, the Department of the Treasury and the IRS provided relief to taxpayers affected by the COVID-19 emergency by postponing due dates with respect to certain time-sensitive acts by taxpayers. One of these time-sensitive acts is the 180-day investment requirement, which says that taxpayers who sold property for an eligible gain have 180 days to invest in a QOF to qualify for deferral of that gain. In Notice 2020-23, the IRS postponed to July 15, 2020, any deadline for the 180-day investment requirement that otherwise would have occurred on or after April 1, 2020, and before July 15, 2020.
In IRS Notice 2020-39, the IRS opens that window even wider. If a taxpayer’s 180th day to invest in a QOF would have fallen on or after April 1, 2020, and before December 31, 2020, the taxpayer now has until December 31, 2020, to invest that gain into a QOF. This relief is automatic; taxpayers do not have to contact the IRS to receive this relief.
Substantial Improvement Period, 90% Investment Standard
Notice 2020-39 provides that the period between April 1, 2020, and December 31, 2020, is suspended for purposes of the 30-month period during which property may be substantially improved.
The guidance also provides that, due to the COVID-19 pandemic, a QOF’s failure to hold less than 90% of its assets in QOZ property on any semiannual testing dates from April 1, 2020, through December 31, 2020, is due to “reasonable cause,” as defined under section 1400Z-2, and such failure does not prevent qualification of an entity as a QOF, or prevent an investment in a QOF from being a qualifying investment. As such, the QOF will not be liable for the statutory penalty under section 1400Z-2(f) for such a failure during this period.
Working Capital Safe Harbor and QOF Reinvestment Period
The IRS notice also reminds taxpayers that, due to the COVID-19 pandemic:
- QOZ business projects that meet the requirements of the 31-month working capital safe harbor under the final regulations have up to an additional 24 months in which to expend their working capital.
- QOFs that received distributions of QOF stock or partnership interests as a return of capital or realized proceeds from a sale of that stock, partnership interest, or QOZ property, have an additional 12 months in which to reinvest those amounts in the manner intended before the COVID-19 pandemic.