Good news from the IRS. In Notice 2020-39, the IRS has laid out certain extensions to deadlines imposed on Qualified Opportunity Funds (QOFs) and their investors due to the COVID-19 pandemic. The IRS previously extended certain due dates under Notice 2020-23; however, this newest notice further extends certain provisions from July 15, 2020 to December 31, 2020. Specifically:
- If a taxpayer’s 180th day to invest in a QOF falls between the period of 4/1/20 and 12/31/20, then the taxpayer now has until 12/31/20 to invest the gain in the QOF. This relief is automatic, and taxpayers do not need to notify the IRS to receive relief under this provision.
- If a QOF fails to hold more than 90% of its assets in QOZ property on any semi-annual testing date between 4/1/20 through 12/31/20, the QOF will be deemed to have failed due to “reasonable cause” under Sec. 1400Z-2(f)(3). The failure does not prevent qualification of an entity as a QOF or an investment in a QOF from being a qualified investment. As such, the QOF will not be held liable for the penalty under Sec. 1400Z-2(f) due to the failure.
- The period between April 1, 2020 and December 31, 2020 is disregarded for purposes of the 30-month period during which property may be substantially improved.
- For QOZ business projects that meet the requirements of the 31-month working capital safe harbor under the final regulations, the Notice reminds taxpayers that these projects have up to an additional 24 months to expend their working capital.
- QOFs that received distributions of QOF stock or partnership interests as a return of capital or realized proceeds from the sale of that stock, partnership interest or QOZ property have 12 months in which to reinvest those amounts. If the QOF’s original 12-month reinvestment period includes January 20, 2020, then the QOF has an additional 12 months in which to reinvest those amounts in the manner originally intended prior to the January 20, 2020 date.
Please reach out to your Somerset advisor or to assist you in applying the provisions under IRS Notice 2020-39. As always, we are here and ready to help.