Taxpayers who recognized a gain in 2019 may have until December 31, 2020 to invest in an Opportunity Zone fund, according to a new notice issued by the IRS yesterday.
Update 6/8/20: I made a podcast episode about this topic. Click here to listen.
Update 1/19/21: The IRS has issued Notice 2021-10, which further extends these deadlines.
Under Section 1400Z-2 of the IRS Code, taxpayers normally have 180 days to invest gain in a Qualified Opportunity Fund in order for that gain to be eligible for favorable Opportunity Zone tax treatment.
On April 9, 2020, in response to the ongoing coronavirus pandemic, IRS issued Notice 2020-23, which provided relief to taxpayers by postponing certain due dates to July 15, 2020. One of the deadlines postponed by this previous relief notice was a taxpayer’s 180-day deadline for rolling over gain into a Qualified Opportunity Fund. For any 180-day period that ended on or after April 1, 2020 and before July 15, 2020, the deadline was automatically extended to July 15, 2020.
The newly issued IRS Notice 2020-39 provides further relief for Qualified Opportunity Funds and investors in response to the COVID-19 pandemic. Notably for investors, the new notice further extends the 180-day investment period deadline. Now, for any 180-day period that ends on or after April 1, 2020 and before December 31, 2020, the deadline is automatically extended to December 31, 2020.
Qualified Opportunity Fund managers who had expected a surge of new investment activity leading up to the previous July 15 deadline now may be waiting until year-end to see such a surge materialize.
In practical terms for an individual taxpayer, for any gain recognized on or after October 4, 2019 and before July 4, 2020, there is no 180-day period but rather a 2020 year-end deadline. The deadline to invest in a Qualified Opportunity Fund for these taxpayers is now automatically extended to December 31, 2020. For any gain recognized on or after July 4, 2020, the normal 180-day period will once again apply.
For taxpayers using gain reported on a partnership Schedule K-1, the new December 31, 2020 deadline applies to any gain recognized by the partnership on or after January 1, 2019. Normally, a taxpayer using gain reported on a K-1 can elect to begin the 180-day period on the due date of the passthrough entity’s tax return (not including extensions). For 2019 partnerships returns, this due date was March 15, 2020. The end of the 180-day period that began on that March 15, 2020 date is September 11, 2020, which makes it eligible for the extended December 31, 2020 deadline under the new notice.
Other relief provided in the new notice applies to Qualified Opportunity Fund compliance deadlines, including extensions for complying with the 90 percent investment standard, the 30-month substantial improvement period, working capital safe harbor, and the 12-month reinvestment period.