IRS Notice Spells More Relief for Qualified Opportunity Funds and Investors

The IRS recently issued Notice 2021-10, which provided additional relief to Qualified Opportunity Funds (QOF’s) and their investors due to the ongoing COVID-19 pandemic. The following will compare the relief between Notice 2020-39, which was issued by the IRS on June 4, 2020, and Notice 2021-10.

180-Day Investment Requirement for Investors in QOF’s

• Notice 2020-39: If the last day of the 180-day investment period within which an investment in a QOF is needed in order to satisfy the 180-day requirement falls on or after April 1, 2020 and before December 31, 2020, the last day of the 180-day investment period is postponed to December 31, 2020.
• Notice 2021-10: If the last day of the 180-day investment period within which an investment in a QOF is needed in order to satisfy the 180-day requirement falls on or after April 1, 2020 and before March 31, 2021, the last day of the 180-day investment period is postponed to March 31, 2021. The relief is granted automatically. 

30-Month Substantial Improvement Period for QOF’s

• Notice 2020-39: The period beginning on April 1, 2020 and ending on December 31, 2020 is disregarded in determining any 30-month substantial improvement period.
• Notice 2021-10: The period beginning on April 1, 2020 and ending on March 31, 2021 is disregarded in determining any 30-month substantial improvement period.

90% Investment Standard for QOF’s

• Notice 2020-39: If a QOF’s last day of the first six-month period of the taxable year or last day of the taxable year falls between April 1, 2020 and December 31, 2020, any failure of the QOF to satisfy the 90% investment standard for that taxable year of the QOF is due to reasonable cause and disregarded for purposes of determining whether the QOF or any other qualifying investments in that QOF satisfy the applicable requirements for any taxable year of the QOF.
• Notice 2021-10: If a QOF’s last day of the first six-month period of the taxable year or last day of the taxable year falls between April 1, 2020 and June 30, 2021, any failure of the QOF to satisfy the 90% investment standard for that taxable year of the QOF is due to reasonable cause and disregarded for purposes of determining whether the QOF or any other qualifying investments in that QOF satisfy the applicable requirements for any taxable year of the QOF. The relief is granted automatically. Should failure of the 90% test occur, it is recommended that thorough documentation be maintained.

Working Capital Safe Harbor for QOF Businesses

• Notice 2020-39: All QOF businesses intended to be covered by the working capital safe harbor before December 31, 2020 may receive no more than an additional 24 months to expend the working capital assets of the QOF business.
• Notice 2021-10: All QOF businesses intended to be covered by the working capital safe harbor before June 30 2021, may receive no more than an additional 24 months, including any relief provided under Notice 2020-39, for a maximum safe harbor of no more than 55 months total (and not more than 86 months total for start-up businesses) to expend the working capital assets of the QOF business.

12-Month Reinvestment Period for QOF’s

• Notice 2020-39: If the QOF’s 12-month reinvestment period includes January 20, 2020, that QOF will receive an additional 12 months to reinvest in the manner originally intended before January 20, 2020.
• Notice 2021-10: If the QOF’s 12-month reinvestment period includes June 30, 2020, that QOF will receive an additional 12 months, including any relief provided under Notice 2020-39, for a maximum reinvestment period of no more than 24 months total, to reinvest in the manner originally intended before June 30, 2020.

Source: IRS.gov