COVID-19 Update (NY) - Woods Oviatt Gilman
IRS Grants Relief to Qualified Opportunity Zone InvestorsThe IRS issued Notice 2020-39, which provides welcome relief to opportunity zone investors. Congress introduced Section 1400Z-2 of the Internal Revenue Code to incentivize private sector investment in low-income communities designated as opportunity zones. Investors who invest in opportunity funds doing business in these zones may generally (1) defer tax on their invested capital gains, (2) eliminate a portion of those gains, and (3) pay no tax on the sale of their investments after 10 years. In addition to the relief already available in the final regulations, the Notice provides the following relief:
- Deferral Deadline Extended: Investors generally have 180 days from the gain event to invest in opportunity funds. If the 180th day falls on or after April 1, 2020, and before December 31, 2020, then those investors automatically have until December 31, 2020, to invest their gains in opportunity funds.
- 90% Asset Test Relief: Opportunity funds must semiannually test whether 90% of their assets constitute opportunity zone property. Under the Notice, any failure to meet this test on a testing date falling on April 1, 2020, through December 31, 2020, will not result in a penalty or affect the opportunity fund's status.
- Substantial Improvement Period Tolled: Opportunity funds and their businesses which must substantially improve property within 30 months may disregard the period beginning on April 1, 2020, and ending on December 31, 2020.