Morris, Manning & Martin LLP

01/21/2021 | News release | Distributed by Public on 01/20/2021 23:02

Legal Update

On January 19, 2021, the IRS issued Notice 2021-10 to provide further relief to Qualified Opportunity Funds (QOFs) and Opportunity Zone (OZ) investors during the ongoing COVID-19 pandemic, expanding upon relief previously granted in Notice 2020-39. Notably, as a result of this relief, certain potential OZ investors with eligible gains from 2019 (described below) can invest in a QOF through March 31, 2021.

Notice 2021-10 provides the following relief:

Extension of 180-day reinvestment period

Taxpayers whose last day of the 180-day reinvestment period fell between April 1, 2020 and October 1, 2020, will now have until March 31, 2021 to reinvest eligible gains into a QOF. Note that this period covers eligible gains received several months before the COVID-19 national emergency was declared.

  • Importantly, this means that 2019 eligible gains allocated to an owner of a pass-through entity (to the extent that the pass-through entity itself did not timely reinvest gains into a QOF), such as on a partner's K-1, would still be eligible for reinvestment into a QOF, capturing otherwise unavailable tax benefits.
  • Additionally, any individual taxpayer who sold an appreciated asset (e.g., stock) producing eligible gains at any time from October 4, 2019 onward will have until at least March 31, 2021 to reinvest such eligible gains into a QOF.

Tolling of 30-month Substantial Improvement Period

The 30-month substantial improvement period is now tolled from April 1, 2020 through March 31, 2021. Previously, Notice 2020-39 tolled the 30-month substantial improvement period from April 1, 2020 through December 31, 2020.

Relief for Failure to Comply with the 90% Asset Test

If one of the 90% asset testing dates for a QOF falls within the period beginning on April 1, 2020 and ending June 30, 2021, any failure by the QOF to satisfy the 90% asset test will be automatically treated as (1) being due to reasonable cause, and (2) disregarded for purposes of determining whether the QOF or any otherwise qualifying investments in that QOF satisfy applicable statutory and regulatory requirements.

Extension of Working Capital Safe Harbor

Qualified Opportunity Zone Businesses (QOZBs) holding working capital assets intended to be covered by the working capital safe harbor before June 30, 2021, will receive an additional 24 months, creating a maximum safe harbor period of 55 months total (or 86 months for start-up businesses).

Extension of 12-month QOF reinvestment period

Any QOF with a 12-month reinvestment period including June 30, 2020, will receive no more than an additional 12 months, for a maximum reinvestment period of 24 months total, to reinvest in qualified property.

To learn more about the Opportunity Zone practice group, click here or contact Matt Peurach.