Relief Provided for QOFs and Their Investors in Response to COVID-19 Pandemic

June 5, 2020

The IRS has released Notice 2020-39, occasioned by the need to provide relief to qualified opportunity funds (QOFs) and their investors, in response to the ongoing COVID-19 pandemic.

Relief is granted in the following areas:

180-Day Investment Period

As we have previously written, the QOF regime provides significant tax benefits to taxpayers who reinvest their capital gains in QOFs within 180 days.  Notice 2020-39 provides that if the last day of a taxpayer’s 180-day investment period falls on or after April 1, 2020 and before December 31, 2020, the last day of that 180-day investment period is postponed to December 31, 2020. This relief is automatic. This expands upon the relief previously granted by the IRS in Notice 2020-23, wherein the IRS, in extending the period in which to perform various time-sensitive acts, had postponed to July 15, 2020 any deadline for the 180-day investment requirement that otherwise would have occurred on or after April 1, 2020 and before July 15, 2020.

90-Percent Investment Standard

A QOF must hold at least 90% of its assets in qualified opportunity zone property, determined on semi-annual testing dates. Failure to satisfy this test subjects the QOF to a penalty, unless it is shown that said failure was due to reasonable cause. Notice 2020-39 provides that in the case of a QOF whose (i) last day of the first six-month period of the taxable year or (ii) last day of the taxable year falls within the period beginning on April 1, 2020 and ending on December 31, 2020, any failure by that QOF to satisfy the 90-percent investment standard for that taxable year of the QOF is (1) due to reasonable cause; and (2) disregarded for purposes of determining whether the QOF or any otherwise qualifying investments in that QOF satisfy the QOF requirements for any taxable year of the QOF. This relief is also automatic.

30-Month “Substantial Improvement Period” for QOFs and Qualified Opportunity Zone Businesses

For purposes of the “substantial improvement requirement” with respect to property held by a QOF or qualified opportunity zone business, the 30-month substantial improvement period is tolled during the period beginning on April 1, 2020 and ending on December 31, 2020.

Working Capital Safe Harbor for Qualified Opportunity Zone Businesses

The regulations provide qualified opportunity zone businesses with a “safe harbor” for treating working capital as a “good asset” for testing purposes, if various requirements are met. This safe harbor applies for 31 months and may be extended to 62 months if certain additional requirements are met. All qualified opportunity zone businesses holding working capital assets intended to be covered by the “working capital safe harbor” before December 31, 2020 receive not more than an additional 24 months to expend the working capital assets of the qualified opportunity zone business.

12-Month Reinvestment Period for QOFs

If any QOF’s 12-month reinvestment period includes January 20, 2020,  that QOF receives up to an additional 12 months to reinvest in qualified opportunity zone property some or all of the proceeds received by the QOF from the return of capital or the sale or disposition of some or all of the QOF’s qualified opportunity zone property, provided that the QOF invests the proceeds in the manner originally intended before January 20, 2020. 

Marks Paneth will continue to monitor developments and will provide updates as they become available. Contact your Marks Paneth advisor if you need additional information or assistance or email

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