The announcement essentially renews the prior relief measures implemented via IRS Notice 2020-39 which expired at the end of 2020. Read more for a quick breakdown of the key benefits the IRS is carrying over into 2021.
180-Day Investment Window
Investors are now afforded a 180-day period during which they may choose to make an investment in an Opportunity Zone Fund. This relief is automatic and there is no need to notify the IRS.
90-Percent Requirement Penalty Waiver
Generally speaking, an Opportunity Zone Fund has to meet certain a 90-percent requirement that are reviewed semi-annually. IRS Notice 2021-10 effectively disregards any Opportunity Zone penalties with respect to the 90-percent requirements for any QOFs with testing dates between April 1, 2020 and June 30, 2021. The extension is also automatic.
Working Capital Exceptions (QOZB)
For entities deemed “qualified opportunity zone businesses,” there is typically safe harbor period for retaining working capital, and the guidelines provide a 24-month extension in situations where the business is operating in areas that have been declared a Federal disaster zone. The new IRS Notice explicitly states that this 24-month extension is applicable to any working capital that was retained prior to June 30, 2021, meaning that there can potentially be up to 86 months to expend the working capital.
Substantial Property Improvements Timeframe
Another method for a potential Opportunity Zone Fund to meet the prerequisites for this category is to “substantially improve” the associated property. Per IRS Notice 2021-10, the 30-month substantial notice period is extended—meaning that Opportunity Zone Funds are afforded an additional 12 months to double its basis in their properties.
Reinvestment Window Prolonged
If an Opportunity Zone Fund sells QOZP, reinvestment after disposition of assets may be counted as QOZP on the Fund’s ledgers as long as it is reinvested within a 12-month window and specific conditions are additionally met. The IRS rules provide a 12-month extension of this reinvestment deadline if the delay is attributable to a Federally declared disaster. The most recent IRS notice affords Opportunity Zone Funds the opportunity to take advantage of the 12-month reinvestment extension if the original period includes June 30, 2020 up to a maximum of 24 months.
If you have any questions about these changes, reach out to Geraci Law Firm here.
About the Author
Tae Kim is a Corporate and Securities Attorney whose practice involves advising clients on securities compliance in private and public offerings, fund designing, and preparing offering documents. Tae works closely with clients to establish mortgage funds, real estate acquisition funds, syndications, real estate investment trusts (REITs), and Qualified Opportunity Funds.