Top Three Investor-Friendly Rules From The Newest IRS Opportunity Zone Notice

Tonkon Torp LLP

Tonkon Torp LLP

The IRS issued Notice 2020-39 on June 5, 2020 in response to the COVID-19 pandemic, which extended several deadlines applicable to Opportunity Zone investments.

  • First, investors get more time to invest eligible gains into a Qualified Opportunity Fund (QOF). If an investor’s deadline for investing eligible gains ends on or after April 1, 2020 and before December 31, 2020, the deadline is automatically extended to December 31, 2020. This means that if the investor invests between July 1, 2020 and December 31, 2020, the first test period related to this investment for a QOF that’s on the calendar year would end on June 30, 2021.
  • Second, a QOF or Qualified Opportunity Zone Business (QOZB) gets more time to make substantial improvements. If a QOF or QOZB is relying on passing the substantial improvement test for acquired real property and if it commenced improving the property before April 1, 2020, the usual 30-month deadline for doing so is extended by nine months. If the substantial improvement activity commenced after April 1, 2020, the deadline is extended by the time period from the commencement date to December 31, 2020.
  • Third, a QOF or QOZB gets more time to keep cash on hand. The Working Capital Safe Harbor test has been extended by 24 months. This means that the potential time period allowed for retaining what would otherwise be deemed to be excess working capital could be as much as 86 months (up to 62 months under the IRS’s January 13, 2020 Final Regulations plus the new 24 month extension).

While friendly to investors, in order to weather the storm of a pandemic with no end in sight, in the coming months, the IRS will likely need to reevaluate whether to issue further extensions.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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