The Internal Revenue Service has issued Notice 2020-39 that provides additional pandemic-related relief to opportunity zone investors and opportunity zone funds.
Opportunity zones were created by the Tax Cuts and Jobs Act of 2017 to stimulate economic development in distressed low-income communities by offering potentially significant tax benefits to investors that make long-term investments in these areas. Capital gains qualify for beneficial treatment under the law as long as they are invested within 180 days of the gain being realized.
The Alternative & Direct Investment Securities Association (ADISA), a trade group representing the alternative investment and securities industry, notified its members of the changes and clarifications as outlined below by Ryan McCormick, senior vice president and counsel for The Real Estate Roundtable.
If the 180-day investment period to roll gain into an opportunity fund would have expired between 4/1/20 and 12/31/20, the deadline is extended to 12/31/20.
If an opportunity has a compliance date for the 90 percent investment asset test that falls between 4/1/20 and 12/31/20, failure to comply is automatically excused under the reasonable cause exception.
The 30-month substantial improvement period for real property owned by an opportunity fund or opportunity zone business is tolled from 4/1/20 through 12/31/20.
The IRS has clarified that the working capital safe harbor for opportunity fund working capital assets is extended under the president’s emergency declaration by 24 months (for a total period of 55 months) if the working capital is held by the fund before 12/31/20 and the other requirements for the safe harbor are met.
The 12-month period for an opportunity fund to reinvest proceeds from the return of capital or disposition of property is extended by an additional 12 months if the original period included 1/20/20, the date of FEMA’s major disaster declaration and other requirements are met.