IRS contacts taxpayers about qualified opportunity fund requirements

IRS contacts taxpayers about qualified opportunity fund

The IRS has started sending letters to taxpayers that attached (or indicated they attached) a Form 8996, “Qualified Opportunity Fund,” to their tax returns. The IRS letters are advising these taxpayers that they may need to take additional action related to qualified opportunity funds (QOFs).

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According to today’s IRS release—IR-2020-274—taxpayers may receive Letter 6250, Self-certifying as Qualified Opportunity Fund (QOF), advising that if they intended to self-certify as a QOF, they may need to take additional action to meet the annual self-certification requirement. The IRS letter advises that to correct a 2018 self-certification as a QOF, the taxpayer must file an amended return or an administrative adjustment request (AAR). If an entity that received the IRS letter fails to take remedial action to self-certify as a QOF, the IRS may make a referral for an examination. Investors who made an election to defer tax on eligible gains invested in that entity may also be subject to examination for an invalid election.

Today’s IRS release also explains that taxpayers may receive Letter 6251, Reporting Qualified Opportunity Fund (QOF) Investments, notifying them that they may not have properly followed the instructions for Form 8949, Sales and other Dispositions of Capital Assets, or that they did not appear to have eligible gain that would enable them to make a valid deferral election for gains invested in a QOF. If a valid deferral election was intended, the taxpayer can file an amended return or an AAR. According to this IRS release, a taxpayer’s failure to act will mean that those taxpayers who received the IRS letter may not have a qualifying investment in a QOF, and the IRS may make a referral for examination. 

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