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Opportunity Zone Funding Extension

Opportunity Zone Funding Extension

The key components of Notice 2020-39 (issued 6/04/2020) are listed below:

Notice 2020-39

  • This notice extends the termination date of the 180-day reinvestment period. The termination of the 180-day reinvestment period would otherwise end between April 1, 2020, and December 31, 2020, will now have until December 31 to fund the Qualified Opportunity Fund (QOF). The prior COVID extension was July 15, under Notice 2020-23.
    1. There are significant 2019/2020 long-term tax planning opportunities and a unique situation where a taxpayer might file a return (current extended due date – October 15) before funding their QOF. Amended returns will be allowed if the taxpayer had not estimated the funding amount before filing their return.
    2. This extension will avoid complications associated with the early adoption of the Final Regulations for taxpayers with pre-March 15th, 2020 gains.
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Relief For Qualified Opportunity Funds And Investors

BLAKE CHRISTIAN: Relief For Qualified Opportunity Funds And Investors

Relief for Qualified Opportunity Funds and Investors Affected by Ongoing Coronavirus Disease 2019 Pandemic

The key components of Notice 2020-39 (issued 6/04/2020) are listed below:

This notice extends the termination date of the 180-day reinvestment period. The termination of the 180-day reinvestment period would otherwise end between April 1, 2020, and December 31, 2020, will now have until December 31 to fund the Qualified Opportunity Fund (QOF). The prior COVID extension was July 15, under Notice 2020-23.
There are significant 2019/2020 long-term tax planning opportunities and a unique situation where a taxpayer might file a return (current extended due date – October 15) before funding their QOF. Amended returns will be allowed if the taxpayer had not estimated the funding amount before filing their return.

This extension will avoid complications associated with the early adoption of the Final Regulations for taxpayers with pre-March 15th, 2020 gains.
The 30-month “Substantial Improvement” test (i.e., doubling of basis) is extended to at least 39 months (the regular April – December 2020 period is essentially frozen). Additional COVID-related extensions may also be available under the Opportunity Zone (OZ) Regulations.

Failure to meet the 90% qualified asset test at the QOF level during any testing period falling in the April 1 – December 31, 2020 period is effectively ignored although IRS Form 8996 must still be completed and filed.
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Opportunity Zone Funding Extension

BLAKE CHRISTIAN: Opportunity Zone Extensions

The key components of Notice 2020-39 (issued 6/04/2020) are listed below: Notice 2020-39

This notice extends the termination date of the 180-day reinvestment period. The termination of the 180-day reinvestment period would otherwise end between April 1, 2020, and December 31, 2020, will now have until December 31 to fund the Qualified Opportunity Fund (QOF). The prior COVID extension was July 15, under Notice 2020-23.
There are significant 2019/2020 long-term tax planning opportunities and a unique situation where a taxpayer might file a return (current extended due date – October 15) before funding their QOF. Amended returns will be allowed if the taxpayer had not estimated the funding amount before filing their return.

This extension will avoid complications associated with the early adoption of the Final Regulations for taxpayers with pre-March 15th, 2020 gains.
The 30-month “Substantial Improvement” test (i.e., doubling of basis) is extended to at least 39 months (the regular April – December 2020 period is essentially frozen). Additional COVID-related extensions may also be available under the Opportunity Zone (OZ) Regulations.

Failure to meet the 90% qualified asset test at the QOF level during any testing period falling in the April 1 – December 31, 2020 period is effectively ignored although IRS Form 8996 must still be completed and filed.
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The Opportunity Zone Program – Ideal For Entrepreneurs

While the first set of Treasury Regulations and initial OZ statute primarily emphasized real estate projects as re-investment options, the final regulations clarified that operating businesses are also appropriate reinvestments for deferred gains. Unsurprisingly, most of the early Qualified Opportunity Funds (QOFs) focused entirely on real estate projects. However, once regulations had been finalized, investors and advisors have grasped the full flexibility and power of the OZ program. Additionally, private investors, PE firms and VC firms have come to realize that using the OZ program for operating businesses may yield even more substantial long-term benefits than real estate investments -- for investors as well as OZ communities.

While the first set of Treasury Regulations and initial OZ statute primarily emphasized real estate projects as re-investment options, the final regulations clarified that operating businesses are also appropriate reinvestments for deferred gains.

Unsurprisingly, most of the early Qualified Opportunity Funds (QOFs) focused entirely on real estate projects. However, once regulations had been finalized, investors and advisors have grasped the full flexibility and power of the OZ program. Additionally, private investors, PE firms and VC firms have come to realize that using the OZ program for operating businesses may yield even more substantial long-term benefits than real estate investments — for investors as well as OZ communities.

SINGIFICANT OZ BENEFITS FOR ACTIVE BUSINESSES

Both the Trump Administration and QOF architects view the use of the OZ program as a valuable tax and economic development tool for operating businesses for the following reasons:
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Opportunity Zone Program Deadlines And Guidance

Opportunity Zone Deadlines - Blake Christian

The IRS issued Notices 2020-18, 2020-20, and 2020-23 (“Notices” or “Notice”) in response to the COVID-19 crisis and CARES Act. These Notices are intended to provide some needed guidance, extended filing and compliance deadlines, and cash-flow relief to taxpayers struggling with this current economic environment. The following is a quick summary of these Notices and how Opportunity Zone investors may be able to benefit from:

-an extended window for investing their capital gains into a Qualified Opportunity Fund (QOF),
-an additional 24-month Federal Disaster extension of the standard 31-month working capital safe harbor and the “substantial improvement” period for a tangible property (if included in the written business plan), and
-an extension of time to deploy Qualified Opportunity Zone Business (QOZB) funds into QOZB Property (QOZBP).

Notice 2020-18

Postpones the due date from April 15, 2020, until July 15, 2020, for filing the vast majority of federal income tax returns and making Federal income tax payments otherwise due April 15, 2020
Notice 2020-20

Provides additional relief by postponing specific Federal gift (and generation-skipping transfer) tax return filings and payments
Notice 2020-23

-Provides additional relief to affected taxpayers, as well as relief for specific time-sensitive actions and postponement of due dates in respect to specific government acts
-Affected taxpayers are any persons (as defined in section 7701(a)(1) of the Code) with a Federal tax payment obligation, or a Federal tax return or other form filing obligation, which is due to be performed (initially or pursuant to a valid extension) on or after April 1, 2020, and before July 15, 2020, who are affected by the COVID-19 emergency
-For a detailed list of specific filing and payment obligations that have been extended by this Notice, see Section III, A. linked in the header
-Affected taxpayers with respect to Specified Filing and Payment Obligations, the due date for filing Specified Forms and making Specified Payments are automatically postponed until July 15, 2020
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PDF COVID-19 Impact On Opportunity Zone Program Deadlines

BLAKE CHRISTIAN : Opportunity Zones Deadlines

The IRS issued Notices 2020-18, 2020-20, and 2020-23 (“Notices” or “Notice”) in response to the COVID-19 crisis and CARES Act. These Notices are intended to provide some needed guidance, extended filing and compliance deadlines, and cash-flow relief to taxpayers struggling with this current economic environment. The following is a quick summary of these Notices and how Opportunity Zone investors may be able to benefit from:

-an extended window for investing their capital gains into a Qualified Opportunity Fund (QOF),
-an additional 24-month Federal Disaster extension of the standard 31-month working capital safe harbor and the “substantial improvement” period for a tangible property (if included in the —–written business plan), and an extension of time to deploy Qualified Opportunity Zone Business (QOZB) funds into QOZB Property (QOZBP).

Notice 2020-18
-Postpones the due date from April 15, 2020, until July 15, 2020, for filing the vast majority of federal income tax returns and making Federal income tax payments otherwise due April 15, 2020.

Notice 2020-20
Provides additional relief by postponing specific Federal gift (and generation-skipping transfer) tax return filings and payments. Read More

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The Top 10+ Things You Need to Know About The 180-Day OZ Reinvestment Rule

The Top 10+ Things You Need to Know About The 180-Day OZ Reinvestment Rule

On January 13, 2020 the U.S. Department of Treasury published Final Regulations for the Opportunity Zone (OZ) program – a full two years after the powerful and flexible OZ program was implemented as part of the 2017 Tax Cuts and Jobs Act. The Final Regulations were widely applauded following much controversy and public input over the first two rounds of Proposed Regulations that had been released on October 29, 2018 and April 17, 2019.

The several hundred pages of preamble and the text of the Final Regulations certainly have varying levels of complexity, but clearly one of the more challenging areas for OZ investors is determining exactly when the 180-day reinvestment period begins and ends. Taxpayers who get this wrong will completely miss out on the best tax program in decades. A situation you won’t want to be in the middle of.
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Opportunity Zone Investing In The Covid-19 ERA

Opportunity Zone Investing In The Covid-19 ERA

Q1. The government has tried to help millions of taxpayers and small businesses during the Covid-19 crisis. Do you think Opportunity Zone (OZ) investors and funds will receive any relief?

BLAKE CHRISTIAN: Actually, the final OZ regulations provided extremely liberal rules regarding when the 180-day reinvestment for funding a Qualified Opportunity Fund (QOF) period starts. In the fairly common situation in which a gain is flowing through to a taxpayer on a schedule K-1 from a partnership, S Corp or a trust, the reinvestment period for calendar 2019 capital gains begins on March 15th and runs through September 10th, 2020, provided the taxpayer elects an early application of the final regulations.

Q2. Why hasn’t the IRS done more?

BC: Actually, it did. In early April, the IRS issued Revenue Procedure 2020-23, which provides a sliver of an extension for investors who had a direct capital gain in the last quarter of 2019 (that did not flow through on a K-1). If a normal 180-day reinvestment period was set to expire between April 1, 2020 and July 14, 2020, the Revenue Procedure extends the deadline until July 15, 2020 – a small crumb for a handful of OZ investors. Various OZ trade groups are continuing to push for a longer extension.
Once the OZ Funds are dropped down into the QOZB subsidiary, the investors receive a minimum of 31 months, and as long as 62 months to, acquire Qualified Opportunity Zone Business Property (QOZBP). The regulations also provide for the possibility of an additional 24 months when there is a national disaster declared in the taxpayer’s business location.
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Is It Better To Start A New Business Or Relocate An Existing One Into An OZ?

start a new business or relocate an existing one into an OZ

As we enter into the third year of the federal Qualified Opportunity Zone (QOZ) program we have a slightly clearer picture of how taxpayers are using this flexible and impactful program.

Not surprisingly, the vast majority of early Qualified Opportunity Funds (QOFs) formed through Dec. 31, 2019 are focused on real estate projects as they begin directing their investments into Qualified Opportunity Zone Businesses (QOZBs). Preliminary reports in 2019 indicated that only about 5% of public QOFs were focused on operating businesses. However as the Treasury Department provided more guidance through new sets of proposed and final regulations, taxpayers and the OZ community have come to realize that using the OZ program for operating businesses can yield even greater long-term benefits for both OZ communities and investors compared to real estate projects alone.

OZ PROGRAM PARTICIPATION

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Opportunity Zone (OZ) Final Regulations & Frequently Asked Questions

BLAKE CHRISTIAN _opportunity zone frequently asked questions

The federal Opportunity Zone (OZ) Program was enacted as part of the 2017 Tax Act. Two sets of lengthy Proposed Regulations were issued in 2018 and early 2019. On December 18th Treasury and the IRS issued 544 pages of Final Regulations, including an extensive preamble.

Consistent with the Proposed Regulations, Treasury attempted to interpret the OZ statute in the most taxpayer friendly
ways. The Final Regulations (“Regulations”) are being well-received by OZ investors, OZ Fund managers and OZ consultants. We anticipate that OZ fund investing will see renewed momentum as a result of the clarity in these regulations, as well as the December 31st deadline for maximizing the OZ benefits.

The Regulations will generally become effective 60 days from December 18th, but taxpayers can elect to adopt
them earlier.

A discussion of the most significant provisions are summarized below:

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December 31st Deadline To Maximize Federal Opportunity Zone Benefits

BLAKE CHRISTIAN -Maximize Opportunity Zones Benefits

The federal Qualified Opportunity Zone (QOZ) program is by the far the most valuable and impactful tax program enacted in this century.  The program was developed under the Obama Administration but finalized under the Trump Administration and had wide bi-partisan support since it is designed to infuse hundreds of billions of dollars into economically challenged communities. The program will yield significant tax benefits for both investors and communities across the country for the next three decades.

December 31st is a very critical date for investors and QOZ fund managers:

  • Qualified Opportunity Funds (QOF) must be established and funded by December 31, 2019 in order for those investors to get the maximum benefits under this long-term investment program. This deadline exists since the OZ rules require an investor to hold their fund investment for at least seven years to obtain the maximum 15% reduction in the deferred tax gain that must be reported on December 31, 2026. Investments made after December 31st will not allow the full seven-year holding period – resulting in an additional 5% gain in 2026.

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Options For Qualifying Your Pre-2018 Opportunity Zone Property

BLAKE CHRISTIAN - Qualifying For Opportunity Zone Program

Anyone in the real estate business should be aware of the new, powerful, and flexible Opportunity Zone (OZ) program, which became effective January 1, 2018, as part of the Trump Administration’s Tax Cuts and Jobs Act (2017 Tax Act).

The OZ program allows up to a seven-year federal (and in most states) tax deferral on short-term or long-term capital gains, resulting in a 15 percent permanent tax reduction on the reinvested gains after holding the OZ investment for at least seven years, and a complete federal tax exemption of any post-reinvestment appreciation in the OZ investment(s) after ten years. It is important to note that California, Massachusetts, Mississippi, and North Carolina have not adopted the federal provisions. OZ- related tax benefits are not available in these states; therefore, real estate transactions may be best suited for Section 1031/ Like-Kind Exchanges rather than OZ investments.

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