On June 5, 2020, the IRS issued Notice 2020-39 (the “Notice”), which announces various extensions of deadlines for Qualified Opportunity Funds (QOF) and their investors due to COVID-19 pandemic. A summary of the extensions that are set forth in the Notice are summarized below:

180-Day Investment Period

Generally, taxpayers must reinvestment capital gain in a QOF within 180 days after the gain is realized from a sale or exchange. The Notice provides that 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 180-day investment period is automatically postponed to December 31, 2020. This relief is automatic. However, the taxpayer still needs to make a valid deferral election in accordance with the instructions to Form 8949, complete Form 8997, and file the completed Form 8949 and Form 8997 with a timely filed tax return, including extensions; or file an amended return for the taxable year the gain would have been recognized if the qualified opportunity zone did not defer the gain recognition.

90-Percent Investment Standard for QOFs

The Notice provides that a QOF’s failure to hold less than the 90% of its assets in qualified opportunity zone property on any semi-annual testing dates from April 1, 2020, through December 31, 2020, is deemed due to “reasonable cause” under Internal Revenue Code Section 1400Z-2(f)(3) and that such failure does not prevent qualification of an entity as a QOF or an investment in a QOF from being a qualifying investment. Thus, penalties arising under section 1400Z-2(f) due to such failure during this period should be waived.

30-Month Substantial Improvement Period for QOFs and Qualified Opportunity Zone Businesses

The Notice provides that 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.

Working Capital Safe Harbor for Qualified Opportunity Zone Businesses

The Notice reminds taxpayers that qualified opportunity zone businesses holding working capital intended to be covered by the 31-month working capital safe harbor before December 31, 2020, will receive up to an additional 24 months to spend the working capital on qualifying property. This extension was previously allowed under the prior declaration of a Federally declared disaster relating to the COVID-19 pandemic effective on January 20, 2020.

12-Month Extension of Reinvestment Period for QOFs

The Notice also reminds taxpayers that 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 other qualified opportunity zone property includes January 20, 2020, the reinvestment period is extended up to an additional 12 months. This extension is allowed (again) under the regulations due to the disaster declaration.

This blog will be updated when more information is available.

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Photo of Louis B. Schatz Louis B. Schatz

Louis Schatz is a partner in Shipman’s Tax and Employee Benefits Practice Group, a group which he chaired for many years. From 2007 to 2017, Lou served on the firm’s seven-person Management Committee. He is the past Chair of the Tax Section of…

Louis Schatz is a partner in Shipman’s Tax and Employee Benefits Practice Group, a group which he chaired for many years. From 2007 to 2017, Lou served on the firm’s seven-person Management Committee. He is the past Chair of the Tax Section of the Connecticut Bar Association.

Lou practices in the areas of federal and State of Connecticut tax with attention to the representation of closely held businesses organized as limited liability companies, partnerships and S corporations; real estate joint ventures; and the representation of taxpayers involved in federal and Connecticut tax controversies (at the audit, appellate and court levels). He is a frequent lecturer on federal and State of Connecticut tax, partnership and limited liability company issues.

Photo of Elva M. Saltzman Elva M. Saltzman

Elva Saltzman assists clients in matters related to federal, state and local taxation. While in law school, Elva served as a volunteer tax adviser for the Global Connections’ Tax Assistance Program at Penn State University, and as a research assistant for the International…

Elva Saltzman assists clients in matters related to federal, state and local taxation. While in law school, Elva served as a volunteer tax adviser for the Global Connections’ Tax Assistance Program at Penn State University, and as a research assistant for the International Sustainable Development Projects Law Clinic at Penn State Law. In addition, Elva worked as an intern for the Low-Income Taxpayer Clinic of Philadelphia Legal Assistance.