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Tuesday, June 9, 2020

Qualified Opportunity Zone Funds and Investors Receive Additional Deadline Relief in Response to COVID-19


In Notice 2020-39 (June 4, 2020), the IRS granted deadline relief for Qualified Opportunity Zone (QOZ) investors and Qualified Opportunity Funds (QOFs) in response to the COVID-19 pandemic. Extended deadlines apply to the 180-day investment period, the 30-month substantial improvement requirement, the 90% investment standard requirement, the time period for QOFs to reinvest certain proceeds under the Opportunity Zone regulations, and the time period for QOZ businesses to expend capital under the working capital safe harbor.


180-Day Investment Period

The 180-day period to invest capital gain in a QOF generally begins on the date of the sale or exchange that generated the capital gain. Notice 2020-39 extends this investment deadline to December 31, 2020, if the original 180-day period for the investment would have ended at any time from April 1, 2020, through December 30, 2020. This extension is automatic.


30-Month Substantial Improvement Requirement

Under IRC Section 1400Z-2(d)(2), property can be treated as QOZ business property if it is substantially improved by a QOF or QOZ business within a 30-month period upon acquisition. Notice 2020-39 disregards the period beginning on April 1, 2020, and ending on December 31, 2020, in counting the 30-month period for substantial improvement.


90% Investment Standard

A QOF must hold at least 90% of its assets in QOZ property. Under Notice 2020-39, if a QOF fails its 90% investment test during the period beginning on April 1, 2020, and ending on December 31, 2020, such failure is deemed to be due to “reasonable cause” and does not disqualify the QOF or investments into the QOF under §1400Z-2.


12-Month Reinvestment Safe Harbor

Subject to certain requirements, regulations under §1400Z-2 provide that, if a QOF's plans to reinvest proceeds from the return of capital or the sale or disposition of some or all of its QOZ property are delayed due to a federally declared disaster, then the QOF may benefit from an additional 12-month period to reinvest. Notice 2020-39 confirms that, as a result of the declaration of a federally declared disaster in all QOZs, the 12-month extension for QOFs to reinvest certain proceeds applies to all QOFs that otherwise qualify so long as the original reinvestment period included January 20, 2020 (the date of the disaster identified in the federal declarations).


Working Capital Safe Harbor

For a QOZ business located in a QOZ within a federally declared disaster area, the final regulations grant the QOZ business an additional 24 months to deploy its working capital under the working capital safe harbor. Here again, Notice 2020-39 confirms that, as a result of the declaration of a federally declared disaster in all QOZs, the final regulations' provision allowing a 24-month extension for the working capital safe harbor for QOZ businesses applies to all QOZ businesses that otherwise qualify.

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