The Biden Administration is continuing to support the program. This comes as no surprise, considering the architects of the 2018 program came out of the Obama Administration. We do anticipate a few OZ program refinements this year, but no major overhaul. The legislative program updates we anticipate are summarized below, in Exhibit A. For the most part, these changes will be beneficial to investors.

Perhaps the most talked about topic in the tax world is President Biden’s proposal to increase the rates for long-term capital gains. If passed, the maximum rate could rise from 23.8% to 43.4% for taxpayers with over one million dollars of taxable income. There are doubts that Congress will increase the rate to that level, but any rate change may or may not survive until 2026, when the OZ deferred gains are generally reportable (based on the next administration). The risk of the rate increase for 2020 and 2021 deferred gains should be considered when deciding to defer, and we will be glad to discuss the long-term impact.

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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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We asked TaxConnections Member and leading tax expert Blake Christian, Tax Partner, HCVT, Long Beach, CA/Park City, Utah about the impact on Opportunity Zones during this time. The goal of my questions to Blake was gathering how the pandemic affects Opportunity Zones and advice on strategies moving forward. TaxConnections genuinely appreciates Blake’s input as he offers very valuable insight as a known expert retained by many firm partners nationally to set up Opportunity Zone structures properly for their clients.

Q. Can you tell me how a company or investor will be impacted in terms of Opportunity Zones?

A. Companies and individual investors who are considering, or have already invested into, Opportunity Zone projects will not be un-nerved as much as short-term investors since they are essentially locked into an investment period of ten years or more.
Investors who bailed out of the stock market early and generated large tax gains should look to Opportunity Zone investment opportunities as an alternative investment.

Q. What can organizations do without people having touch points or coming in contact with each other on Opportunity Zones?

A. Aside from site visits related to real estate projects, virtually all of our 40+ Opportunity Zone projects have not required face-to-face interaction and the various clients and advisors are invariably in different cities – so conference calls and video conferencing has worked very well.

The cancellation of various OZ conferences where we can network and share best practices is a clear loss for the short-term – but I foresee this only being an issue for the next 6 to 8 weeks if Americans use common sense.

Q. Any ideas what we could present to the President’s Council on Opportunity Zones regarding current crisis?
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The 2017 Tax Cuts and Jobs Act provided new benefits to taxpayers to encourage investment in economically disadvantaged areas. The benefits are extensive but they require careful compliance with the regulations governing the new program.

The Opportunity Zone program permits people to invest the proceeds of a recent capital gain in one or more designated “Qualified Opportunity Zones” to defer and reduce that original capital gain.

A. Here’s how it works:

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