IRS Extends Opportunity Zone Tax Incentive Deadlines

COVID-19 Update

This article has been superseded by new guidance. For more up-to-date information on opportunity zones, please click here.

On Friday, April 10, the IRS released Notice 2020-23 (the Extension Notice), which extended certain deadlines for federal tax-related obligations that fall on and between April 1 and July 14 of this year. Among the deadlines extended is the 180-day period for a taxpayer with eligible capital gains to invest some or all of those gains in a qualified opportunity fund (QOF) in order to be able to elect benefits under the opportunity zone (OZ) tax incentive. The OZ incentive, enacted in late 2017, generally permits any person that would otherwise be required to report capital gains (individuals, corporations, REITs, trusts, tax-exempt entities, partnerships, etc.) to invest those gains in QOFs within a 180-day period and make an election on their tax return in order to defer the payment of tax on those capital gains (to the extent invested in a QOF) until as late as the end of 2026. Additional benefits are also available pursuant to the OZ incentive, including potential partial forgiveness of the tax on the original capital gain and exclusion of future capital gains, provided certain requirements are satisfied.

The Extension Notice provides that, due to the COVID-19 emergency, taxpayers that are required to make certain tax payments, file certain tax forms, or take certain time-sensitive actions between April 1, 2020 and July 14, 2020, are granted an extension to July 15, 2020, to pay, file or take such actions. The Extension Notice specifically states that the QOF investment deadline is a time-sensitive action, and therefore, if the deadline to invest in a QOF falls between those dates, such investment deadline is extended to July 15, 2020. (Click here for more information regarding how this extension applies to exchanges of real property under Section 1031, which is considered another time-sensitive action.) This means that if the event that triggered capital gains and the 180-day time clock to invest in a QOF for purposes of making an OZ election occurred on any date on or between October 5, 2019 and January 17, 2020, the deadline to invest in a QOF is extended to July 15, 2020. For example, under the general OZ rules, if Individual Z sold publicly-traded stock on November 1, 2019 for a gain of $2 million, Individual Z has until April 28, 2020 to make an investment in a QOF in order to be able to elect OZ benefits. However, pursuant to the Extension Notice, Individual Z now has until July 15 (an additional 78 days, in this example) to make an investment in a QOF in order to be able to elect OZ benefits. Please note that in certain circumstances the 180-day time period may not begin on the date of the capital gain generating event (e.g., for certain partners in partnerships that recognize gain and do not elect OZ benefits at the partnership level).

How Manatt Can Help: Manatt Tax professionals are prepared to work with investors and other interested persons regarding the OZ incentive, including determining who is an eligible taxpayer and what capital gains are eligible, calculating the 180-day investment period, forming or investing in a QOF, interpreting the rules applicable to investments in QOFs, or making use of the extended deadline for investing in a QOF.

For More Information: For more information regarding the OZ tax incentive and deadline extension, please contact Megan Christensen, partner, Manatt Tax, at mchristensen@manatt.com or 202.585.6594, or Neil Faden, partner, Corporate and Finance, at nfaden@manatt.com or 212.830.7181.

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