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The Internal Revenue Service (IRS) recently offered guidance for Qualified Opportunity Funds (QOFs) and their investors pertaining to the ongoing COVID-19 health crisis. The notice (Notice 2020-39) responds to questions about relief from certain requirements under the Internal Revenue Code (Code) and its implementing regulations. The IRS also updated the Qualified Opportunity Zones (QOZ) FAQ.
The notice provides that any taxpayer who sold property for an eligible gain and have had 180 days to invest in a QOF to defer a gain may have additional time to do so. If a taxpayer’s 180th day falls on or between April 1, 2020, and Dec. 31, 2020, the taxpayer can invest their gain into a QOF by Dec. 31, 2020. (Some taxpayers’ 180th days have already been postponed through July 15, 2020, under Notice 2020-23.) The notice also says the April 1, 2020, and December 31, 2020, time period is suspended for purposes of the 30-month threshold of which property may be improved substantially.
The guidance goes on to say that due to the COVID-19 emergency, a QOF’s failure to hold less than 90% of its assets in QOZ property on any semi-annual testing dates between April 1, 2020, and Dec.31, 2020 is “due to reasonable cause under section 1400Z-2(f)(3) and such failure does not prevent qualification of an entity as a QOF or an investment in a QOF from being a qualifying investment.” Given this information, QOFs will not be held liable for statutory penalties due to the failure within this timeframe (under section 1400Z-2(f).
When it comes to QOZ business projects meeting the requirements of the 31-month working capital safe harbor under the final regulations, the new notice reminds taxpayers that due to the pandemic, projects have up to 24 more months to expend their working capital. The notice also reminds taxpayers “due to the COVID-19 pandemic, QOFs which 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 qualified opportunity zone property have an additional 12 months in which to reinvest those amounts in the manner intended before the COVID-19 pandemic.”
For more information about COVID-19-related tax relief for QOFs and investors, contact Doeren Mayhew today.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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