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IRS Issues COVID-19 Relief for Qualified Opportunity Funds

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Previous tax reform created the chance to defer and eliminate capital gain taxes. With the help of state Governors around the country, certain low-income areas were designated as Opportunity Zones with the intent to spur investment in these economically depressed areas. The reinvestment of any capital gain into these specified Opportunity Zones allows taxpayers to take advantage of powerful tax provisions. To learn more about Berntson Porter’s Opportunity Zone services, click here.

In response to the COVID-19 pandemic, last week the IRS issued an advance version of Notice 2020-39, which provides relief measures for Qualified Opportunity Funds (QOF). The deadlines were extended for several key requirements associated with the investment in, and operation of, QOFs.

  • For eligible gains where the 180-day window for reinvestment in a QOF ended between April 1, 2020 and December 31, 2020, the period for reinvestment has been extended until December 31, 2020.
  • Failure to meet the semi-annual testing requirement that 90% of the assets of the QOF are invested in qualified opportunity zone property will not result in penalties for any period between April 1, 2020 and December 31, 2020. The failure will be considered to be due to reasonable causes and will not be subject to the usual penalties.
  • The period between April 1, 2020 and December 31, 2020 will be excluded from the determination of the 30-month period for substantial improvement of qualified opportunity zone business property, meaning those months will not count towards the 30-month time limit.
  • The 31-month working capital safe harbor period for a qualified opportunity zone business to deploy its working capital assets to acquire, construct, or substantially improve tangible property is effectively extended by an additional 24 months due to the federally declared disaster.
  • The 12-month reinvestment period for any proceeds, distributions, or return of capital received by the QOF from a qualified investment has been extended another 12 months if the original 12-month period included January 20, 2020.

Berntson Porter is here to help you navigate these unprecedented times. Visit our online Resource Center for up-to-date information about COVID-19 legislation that impacts you and your business.