Adjustments Are Being Made for Funds and Investors
The effect of COVID-19 will have financial impacts both short-term and long-term. Those considering investing in a Qualified Opportunity Zone Fund (QOF) should know that there are measures being put in place to assist QOF investments.
Investors: Deadline to Reduce Capital Gains by Investing in a Fund Extended
The IRS has provided broad relief for taxpayers’ deadlines over the last month. Specific to Qualified Opportunity Zone (QOZ) investments, if the deadline to invest was between April 1, 2020 and July 15, 2020, the deadline is automatically extended to July 15, 2020.
Qualified Funds: Fund Asset Tests Deadlines Adjusted
Qualified Opportunity Zone Businesses (QOZBs) have 31 months to utilize their working capital held as cash. However, if the QOZ is located in a disaster area (as all 50 states currently are), the QOZB may receive an additional 24 months to utilize its capital if government delays hinder the relevant project. This may be somewhat limited in practice, as most governmental agencies have continued to grant permits and other approvals.
Business has generally gotten slower, however, and the Opportunity Zone statute does include a provision for the avoidance of monetary penalties for “reasonable cause.” There is no current guidance regarding what constitutes reasonable cause, but we predict there will be some this year. Should a fund choose to rely on this, specific documentation will be critical.
Currently, for compliance with the asset tests, the period for a QOF to reinvest proceeds from a sale of QOZ assets into other QOZ assets is 12 months. While there are some provisions in the final rule that allow a 12-month extension if a fund is delayed by a federal disaster, the language is ambiguous. The Department of the Treasury and the IRS have indicated that they plan to extend this reinvestment period due to delays caused within a federally declared disaster area.
Source: Lewis, Dannielle and Graham, Josh. “How opportunity zones are impacted by COVID-19.” WIPFLi.com. April 5, 2020.