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?
A. I would suggest expanding the program to allow investors to invest after-tax monies into a Qualified Opportunity Fund (QOF) – rather than only capital gain amounts, and these after-tax amounts would obtain a 50% tax exclusion when sold after 10-years (vs. 100% exclusion for capital gains investments).
I would also suggest adding new zones that would involve areas that have significant economic downturns as a result of the COVID-19 impact.
I would also encourage Congress to liberalize corporate and individual loss carryback/refund rules. Allow 3-year carryback and also allow taxpayers to certify what their PROJECTED 2020 tax loss will be and allow that PROJECTED LOSS to be carried back immediately to secure refund of income taxes paid over the prior three years. If a taxpayer over-estimates their loss, then a 10% interest/ penalty can be assessed for the excess refunds.
Q. Can you come up with a game plan for the tax community on Opportunity Zones?
A. The AICPA and state CPA organizations should establish task forces to advise small businesses and individuals how to navigate these complex issues. A hotline/ email system manned by CPA’s can respond to calls and emails to assist those needing advice.
The IRS and state tax authorities should also set up similar hotlines.
Q. Can you provide any other insight for investors of Opportunity Zones?
A. Investors may have temporarily invested proceeds from a qualified sale into the market (before setting up a QOF) and due to market decrease have insufficient funds to make their full deferred gain rollover into a QOF. If a taxpayer can prove such situation, maybe an additional 90 day extension to fund the QOF to avoid forcing investors to liquidate in the down market.
Hearing that the credit market has dramatically slowed so financing for OZ and other deals are being delayed, so we may need a technical correction bill to add some relief to various reinvestment deadlines.
If you would like a copy of the series of articles Blake Christian has written on Opportunity Zones, please click here.