by: Steve Rossman, CPA, MT, and Chris Catarino, CPA, MT
Last week, the IRS issued Notice 2021-10, which provides several extensions for Qualified Opportunity Zone (QOZ) investors and other QOZ provisions in response to COVID-19. This is the second round of COVID-19 relief provided to QOZs after IRS issued Notice 2020-39 in June of 2020, which you can read more about here. Today, we’ll give an overview of the extensions.
Below are the extensions provided in the most recent relief (and the dates under the previous relief):
- If the 180th day for investing eligible capital gains into a Qualified Opportunity Fund (QOF) falls between April 1, 2020, and March 31, 2021, the taxpayer/QOZ investor has until March 31, 2021, to make an eligible investment in a QOF to defer such gain. The previous relief only extended gain deferral until December 31, 2020.
- QOFs with either of their semi-annual 90% compliance testing dates falling between April 1, 2020, and June 30, 2021, will NOT be subject to penalties for failure to meet the 90% test for that year. Practically speaking, this means nearly all calendar-year QOFs will be exempt from the 90% compliance tests for 2020 and 2021. The IRS had previously provided relief for tax years with testing dates falling between April 1, 2020, and December 31, 2020.
- The period between April 1, 2020, and March 31, 2021, is suspended ("tolled") for purposes of the 30-month substantial improvement test. For previously used property to qualify as qualified opportunity zone property, a QOF or Qualified Opportunity Zone Business (QOZB) generally must double its basis in the property within 30 months after acquiring it. Accordingly, this relief provides up to an additional 12 months (42 months in total) to meet that the substantial improvement requirement. Previous relief tolled the period from April 1, 2020, through December 31, 2020 (9 months).
- QOZBs with a working capital safe harbor (WCSH) plan in effect before June 30, 2021, will receive an additional 24 months (potentially up to 86 months for start-up businesses) to expend that working capital. This 24-month extension was previously only allowed for QOZB's with WCSH plans in effect before December 31, 2020.
- QOFs are granted an additional 12 months (24 months in total) to reinvest proceeds from the sale of qualified opportunity zone property into new qualified opportunity zone property as long as their original 12-month reinvestment period includes June 30, 2020. The previous relief provided an additional 12 months for reinvestment periods that included January 20, 2020.