Last night, on June 4, 2020, the Internal Revenue Service offered additional relief for Qualified Opportunity Funds (QOF) in response to the ongoing COVID-19 pandemic. The relief extends deadlines for the following requirements relating to opportunity zone investments:
180-Day Investment Requirement – In order to qualify as opportunity zone investment, a taxpayer must reinvest their capital gains during the 180-day period beginning on the date of the sale or exchange. If the reinvestment period ended between April 1, 2020 and before December 31, 2020, it will be postponed to December 31, 2020.
90% Test – A QOF is required hold 90% of its asset in qualified opportunity zone property, which is tested semi-annually. A failure to meet the test for any testing period from April 1, 2020 through December 31, 2020 will be deemed due to reasonable cause and not be subject to statutory penalties.
Working Capital Safe Harbor – A qualified opportunity zone business (QOZB) has 31-month to implement its working capital to acquire, construct, or substantially improve tangible property pursuant to a written plan. The regulations permit a QOZB to have concurrent 31-month periods running for each contribution. The IRS reminded taxpayers that a QOZB has up to an additional 24 months to use its working capital assets when a federal disaster is declared. Therefore, a QOZB may have up to 86 months to employ its working capital.
30 Months Substantial Improvement – A QOZB must substantially improve tangible property within 30-month of its acquisition. The period from April 1, 2020 to December 31, 2020 will be tolled in the determination of the 30-month substantial improvement period.
Reinvested Gains – A QOF that receives distributions, return of capital or proceeds from the sale of an investment, has 12-months to reinvest the proceeds in another qualified investment. The IRS reminded taxpayers that a QOF can receive an additional 12 month to reinvest as a result of a federally declared disaster.
To find about more about tax relief resulting from the COVID-19 pandemic, contact your RS&F Client Advisor for assistance.