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Notice 2020-39: Relief for qualified opportunity zones and investors (COVID-19)

Notice 2020-39: Relief for qualified opportunity zones

The IRS today released an advance version of Notice 2020-39 providing relief for “qualified opportunity funds” (QOFs) and their investors in response to the coronavirus (COVID-19) pandemic.


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The opportunity zone provisions of section 1400Z-2 were added to the Code by the U.S. 2017 tax law (Pub. L. No. 115-97)—the law that is often referred to as the “Tax Cuts and Jobs Act” or TCJA.

Notice 2020-39 [PDF 71 KB]—

  • Addresses the application of certain relief provisions in the section 1400Z-2 regulations
  • Provides relief for certain failures by a QOF to meet the 90% investment standard
  • Postpones the time periods for satisfying certain other requirements
  • Confirms that the 24-month extension for the working capital safe harbor and the 12-month extension for QOFs to reinvest certain proceeds—both as provided under the section 1400Z-2 regulations—are available to otherwise qualifying QOFs and qualified opportunity zone businesses

In a related release—IR-2020-114—the IRS reported that taxpayers that sold property for an eligible gain and that would have had 180 days to invest in a QOF to defer that gain, may have additional time. 

Notice 2020-39 provides that if a taxpayer’s 180th day to invest in a QOF would have fallen on or after April 1, 2020, and before December 31, 2020, the taxpayer now has until December 31, 2020, to invest that gain into a QOF. The IRS stated that the 180th day for some of these taxpayers was already postponed through July 15, 2020, by Notice 2020-23.

In addition, according to the IRS release, Notice 2020-39 provides that the period between April 1, 2020, and December 31, 2020, is suspended for purposes of the 30-month period during which property may be substantially improved.

Under today’s guidance, a QOF’s failure to hold less than the 90% of its assets in qualified opportunity zone property on any semi-annual testing dates from April 1, 2020, through December 31, 2020, is deemed due to “reasonable cause” under section 1400Z-2(f)(3) and that such failure does not prevent qualification of an entity as a QOF or an investment in a QOF from being a qualifying investment. Accordingly, the QOF will not be liable for the penalty under section 1400Z-2(f) due to such a failure during this period.

The IRS release continues to explain that for qualified opportunity zone business projects that meet the requirements of the 31-month working capital safe harbor under the final regulations, Notice 2020-39 reminds taxpayers that due to the COVID-19 pandemic, these projects have up to an additional 24 months in which to expend their working capital. 

Notice 2020-39 also reminds taxpayers that due to the COVID-19 pandemic, QOFs that received distributions of QOF stock or partnership interests as a return of capital or realized proceeds from a sale of that stock, partnership interest or qualified opportunity zone property have an additional 12 months in which to reinvest those amounts in the manner intended before the COVID-19 pandemic.

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