Client Update – Opportunity Zones During the Covid – 19 Pandemic.

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The Tax Cuts and Jobs Act, enacted in December 2017, created a national Opportunity Zone program to provide significant Federal tax incentives, including foregoing capital gains taxes, for investors who invest long term in 8,700 historically distressed neighborhoods throughout the United States that have been designated as Opportunity Zones by the Governor of each State (or territory) of the United States.

Under this Opportunity Zone program, in order to take advantage of tax incentives, there are certain time sensitive requirements which must be satisfied such as: (i) new Qualified Opportunity Zone investments must be made within 180 days of the taxpayer’s sale or exchange of capital property (the “180-day Investment Period”); (ii) 90% of a Qualified Opportunity Fund’s assets must be invested in Qualified Opportunity Zone Property, as measured (by average percentage of assets) on the last day of the first 6month period of the taxable year and last day of the taxable year for the Qualified Opportunity Fund (the “90% Test”); (iii) Qualified Opportunity Funds have 1 year to reinvest proceeds from a sale or disposition of, or return of capital from Qualified Opportunity Zone property (the “1-year Reinvestment Period”); (iv) Qualified Opportunity Zone businesses have 31 months to use working capital (the “31-month Safe Harbor Period”); and (v) a 30 month period in which property must be substantially improved to meet the substantial improvement requirement (the “30-month Substantial Improvement Period”).

These deadlines have become increasingly harder to meet due to the Coronavirus pandemic, government mandated lockdowns, halts on constructions, and economic uncertainty. However, certain relief may be available:

  • On April 9, 2020, the IRS provided limited relief by automatically extending the 180-day Investment Period to July 15, 2020, if the applicable 180-day Investment Period would have expired on or after April 1, 2020, and before July 15, 2020 (See, IRS Notice 2020-23 and IRS Code § 1400Z-2(d)(1));
  • Qualified Opportunity Funds may avoid a penalty for failing the 90% Test, if the Qualified Opportunity Fund can convince the IRS that the failure was attributable to reasonable cause beyond the control of the Fund (See IRS Code §1400Z-2(d)(1) and IRS Code §1400Z-2(f));
  • Qualified Opportunity Funds may receive up to an additional 12 months to reinvest proceeds if reinvestment is delayed due to a Federally declared disaster (which may apply to COVID-19) (Treas. Reg. §1.400Z2(f)-1(b)(2) and IRS Code §7508A);
  • The 31-month Safe Harbor Period may be extended for up to an additional 24 months if the applicable Opportunity Zone is in a Federally-declared disaster area (which may apply to COVID-19) and the applicable project is delayed due to the disaster (See Treas. Reg. § 1.400Z2(d)-1(d)(3)(v) and IRS Code §7508A); and
  • Industry advocates have requested that the IRS issue guidance that the 30-month Substantial Improvement Period also be extended by 1 year (See IRS Code § 1400Z-2(d)(2)(D)(ii) and IRS Code §7508A).

Aside from relief from time sensitive requirements, there is a growing consensus that Opportunity Zone Investment may also help with post COVID-19 economic recovery. Accordingly, there is one bill pending before Congress to defer the year of inclusion for certain capital gain invested in a Qualified Opportunity Fund from December 31, 2026 to December 31, 2030 (H.R. 6513), with enhanced participation possibilities; and another bi-partisan bill that would temporarily define small businesses impacted by COVID-19 as Qualified Opportunity Zone businesses, creating a tax incentive for private investment in these COVID-19 impacted businesses (H.R. 6529). Therefore, although there has been a recent lull in Opportunity Zone investment activity, we do not expect this to last once state governments begin to lift Coronavirus lockdown measures.


This alert should not be construed as legal advice or a legal opinion on any specific facts or circumstances. This alert is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. The contents are intended for general informational purposes only, and you are urged to consult your attorney concerning any particular situation and any specific legal question you may have. We are working diligently to remain well informed and up to date on information and advisements as they become available. As such, please reach out to us if you need help addressing any of issues discussed in this alert, or any other issues or concerns you may have relating to your business. We are ready to help guide you through these challenging times.