IRS Extends COVID-Related Relief for Qualified Opportunity Funds and Their Investors

January 20, 2021

IRS Extends COVID-Related Relief for Qualified Opportunity Funds and Their Investors

The Internal Revenue Service (IRS) has issued Notice 2021-10, which extends the COVID-related relief for Qualified Opportunity Funds (QOFs) and their investors provided in Notice 2020-39.

In particular:

  • If the last day of a taxpayer’s 180-day investment period falls on or after April 1, 2020 and before March 31, 2021, the last day of that 180-day period is postponed to March 31, 2021.

  • The 30-month “substantial improvement” period is tolled during the period beginning on April 1, 2020 and ending on March 31, 2021.

  • In the case of a QOF whose last day of the first six-month period of a taxable year or last day of a taxable year falls with the period beginning on April 1, 2020 and ending on June 30, 2021, any failure by that QOF to satisfy the 90-percent investment standard for that taxable year of the QOF is not considered for purposes of determining compliance with the 90-percent investment standard.

  • All qualified opportunity zone businesses holding working capital assets intended to be covered by the working capital safe harbor before June 30, 2021, receive up to an additional 24 months (including any relief under Notice 2020-39), for a maximum safe harbor period of up to 55 months total (86 months for start-up businesses), to expend the working capital assets.

  • If a QOF’s 12-month reinvestment period includes June 30, 2020, that QOF has up to an additional 12 months⁠—including any relief provided under Notice 2020-39, for a maximum reinvestment period of not more than 24 months total⁠—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.

The extension of the 180-day window to invest a capital gain into a QOF is especially significant. Among other things, taxpayers with certain 2019 capital gains, on which they have already paid the related tax with their 2019 tax return, can amend that return to claim a refund if the capital gain is invested in a QOF by March 31, 2021.

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 responseteam@markspaneth.com.

Visit our Qualified Opportunity Zones web page for updates and advice on how to approach this potentially groundbreaking tax-savings opportunity.

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