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As a result of the continuing COVID-19 impact on businesses and individuals the IRS released a second Notice (IRS Notice 2021-10) on January 19, 2021 to provide Opportunity Zone (OZ) investors with additional time to roll capital gains into a Qualified Opportunity Fund (QOF), as well as additional time to make “substantial improvements” to acquired property and additional time to acquire Qualified Opportunity Zone Business Property (QOZBP). This Notice follows the June 2020 Notice 2020-39 which extended various 2019 and 2020 OZ Program deadlines and testing dates – generally through December 31st. The extended relief under 2021-10 is generally through March 31, 2021.
Details of the relief given by Notice 2021-10 are outlined below:
This extension opens up “late” OZ formation and funding for taxpayers that had 2019 K-1 capital gains (including IRC Section 1231 gains) or non-K-1 gains for “directly held” capital gains on or after October 5, 2019. Amended 2019 tax returns can be filed to report the extended funding.
This Notice also allows another three months, through March 31, 2021, for taxpayers who generated “direct” or indirect (e.g. K-1) gains with an original 180-day reinvestment deadline on or after April 1, 2020. Taxpayers with 2020 K-1 related capital gains generally have until September 10, 2021 to form and fund a Qualified Opportunity Fund (QOF) under the general OZ Regulations – with no impact from 2021-10.
Generally, taxpayers must form and fund any QOZB (subsidiary entities) prior to June 30, 2021 in order to be assured of the additional 24 month extension to invest in Qualified Opportunity Zone Business Property (QOZBP). This allows fairly broad interim investment options for up to 55 months while deciding what specific QOZBP to invest in. In addition, the OZ Regulations require that the fund have a valid business plan and cash flow summary as to how the funds will likely be spent over the working capital safe-harbor period.
Although all of these relief provisions are automatic, taxpayers are still required to timely comply with filing requirements for Forms 8949 (deferral) and 8997 (statement of QOF investments). They must also continue to comply with the 70%/ 30% qualified/ non-qualified assets requirement at the QOZB level as Notice 2021-10 and Notice 2020-39 do not provide any relief or extensions for this QOZB-level testing requirement.
Please contact your HCVT professional or one of our OZ Team members to answer any questions you may have about Notice 2021-10 and the implications it may have on your upcoming tax planning. Additional OZ information and OZ Team contact information can be obtained at: https://www.hcvt.com/services-federal-qualified-opportunity-zone