In Notice 2020-39, issued on Thursday, June 4, 2020, the IRS made substantial accommodations to Qualified Opportunity Funds, and their sponsors and investors, to allow them to address the challenges presented by COVID-19.

  • The Notice reaffirms previous guidance (Notice 2020-23, issued on April 9, 2020) and further extends the 180-day investment deadline for qualified gains. Now, for any gains that needed to be invested on or between April 1, 2020 and December 31, 2020 to meet the 180-day deadline, that deadline is automatically extended to December 31, 2020 (Notice 2020-23 had extended this deadline only to July 15, 2020).
  • The Notice provides for the automatic application of the statutory “reasonable cause” exception to a Qualified Opportunity Fund’s satisfaction of the 90% “good asset” test for all testing dates falling on and between April 1, 2020 and December 31, 2020.
  • The Notice provides that, in determining satisfaction of the 30-month substantial improvement requirement, the period from April 1, 2020 through December 31, 2020 is ignored. In effect, this creates an extension of up to 9 months for substantial improvement projects currently in process and correspondingly shorter extensions for projects initiated between now and the end of 2020.
  • The Notice confirms the rule set forth in the final Opportunity Zone regulations that the Working Capital Safe Harbor can be extended up to 24 months in the event of a federally declared disaster, affirming that the COVID-19 pandemic is such a disaster.
  • And finally, the Notice provides that, with respect to the 12-month reinvestment period for cash returned to a QOF from a disposed QOZ investment, if this reinvestment period intersects January 20, 2020, it is extended for up to an additional 12 months so long as the other requirements applicable to QOF reinvestments are observed.

This is all very positive news. What Notice 2020-39 does not deal with, however, is whether the “written plan” used by a Qualified Opportunity Zone business to comply with the Working Capital Safe Harbor is still required to be effectuated in a manner “substantially consistent” with the original written plan as required under the Opportunity Zone regulations, or whether a greater degree of deviation from the original written plan is allowable in light of the market upheaval that has arisen from COVID-19. This is especially relevant for QOZ projects that had meaningful hospitality elements (hotels, restaurants, entertainment facilities) for which transaction execution is in material peril due to the impact of the COVID-19 pandemic on those business sectors.