The Qualified Opportunity Zone (QOZ) program maps out specific guidelines that investors must follow to successfully defer eligible gains by investing them into Qualified Opportunity Funds (QOFs).
The disruption caused by the COVID-19 crisis has hindered investors and funds from being able to meet many of the program’s requirements. The IRS has responded by temporarily modifying some key QOZ provisions.
In its latest guidance, Notice 2020-39, the IRS provides additional answers and relief for navigating the QOZ process during the pandemic, including:
- Deferral of 180-day time period to reinvest gains. If you have eligible gains and your 180th day to invest and defer those gains through a QOF fell on or after April 1 and before December 31, 2020, you now have until December 31, 2020 to invest the gain into a QOF.
- 9-month suspension of time to improve property. April 1 through December 31, 2020 will be suspended for purposes of the 30-month period to substantially improve the property.
- Relaxation of 90% asset rule. If a QOF fails to hold at least 90% of its assets in a QOZ property on any semi-annual testing date between April 1 and December 31, 2020 due to a reasonable pandemic-related cause, the QOF will not be liable for penalties during this period. The notice clarifies that this failure must not prevent qualification of an entity as a QOF or an investment in a QOF from being a qualifying investment.
The notice also provides important reminders related to the COVID-19 pandemic:
- QOZ business projects that meet the requirements of the 31-month working capital safe harbor have 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 for stock sale, partnership interest or QOZ property have an additional 12 months to reinvest those amounts as intended prior to the pandemic
QOZs remain a tremendously valuable tax-savings vehicle, especially as investors plan to recover from COVID-19 losses. For more information on how you can explore or continue the process of QOF investments during the pandemic, please contact Shashi Singal, Tax Principal, at 516.918.5966 firstname.lastname@example.org.