During this difficult time, DGC provides you with updates and resources here.
As part of its continuing response to the COVID-19 pandemic, on June 4, 2020, the Internal Revenue Service (IRS) issued Notice 2020–39. This Notice provides relief to Qualified Opportunity Funds (QOFs) with regards to five time-sensitive actions that need to be taken under Internal Revenue Code Section 1400Z–2 (often referred to as the “OZ Act”).
Here is a brief summary of the five provisions:
180-Day Investment Period
Generally, taxpayers must reinvest capital gain in a qualified opportunity fund within 180 days after the gain is realized from a sale or exchange. Under the new guidance, if the last day of the 180-day investment period falls on or after April 1, 2020, and before December 31, 2020, the last day of the investment period is automatically postponed to December 31, 2020.
90-Percent Investment Standard
The guidance also provides that a QOFs failure to hold 90 percent of its assets in Qualified Opportunity Zone property on any semi-annual testing date that falls on or after April 1, 2020 and ends on or before December 31, 2020 can be due to reasonable cause on account of the COVID-19 pandemic. Therefore, the failure to satisfy the 90-percent test does not affect an entity’s status as a QOF or prevent an investment in the entity from being a qualified investment. Penalties due to failure to satisfy the 90-percent investment standard during this period are now waived.
30-Month Substantial Improvement Period Tolled
The 30-month period during which property held by a QOF or Qualified Opportunity Zone business must be substantially improved is tolled during the period beginning on April 1, 2020 and ending on December 31, 2020.
24-Month Extension of Working Capital Safe Harbor Spending Deadline
A Qualified Opportunity Zone business holding working capital intended to be covered by the 31-month working capital safe harbor before December 31, 2020 will now receive up to an additional 24 months to spend the working capital on qualifying property. This extension is allowed under the QOF regulations because of a federally declared disaster relating to the pandemic effective on January 20, 2020.
12-Month Extension of Reinvestment Period for QOFs
Finally, if any part of the 12-month period during which a QOF may reinvest returns of capital and proceeds from the sale of Qualified Opportunity Property in Qualified Opportunity Zones (includes January 20, 2020), the reinvestment period is extended up to an additional 12 months. Again, this extension is allowed under the QOF regulations due to the disaster declaration.
If you have questions about these new Qualified Opportunity Fund provisions, please reach out to a member of your DGC client service team or Matthew Mulroney, CPA, MST at 781-937-5372 / email@example.com. You can also visit our coronavirus web page at dgccpa.com/coronavirus which is frequently updated with resources to help you deal with the impact of the coronavirus on you and your business.
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