The notice confirms that, as a result of the President’s emergency (rather than disaster) declaration on March 13, 2020, any Qualified Opportunity Zone Business holding working capital assets under a safe harbor arrangement established before December 31, 2020, is entitled to an additional 24 months to expend such assets. Thus, any such business now has up to 55 months to spend cash held under a working capital safe harbor arrangement.
5. 12 Month Reinvestment Period for Qualified Opportunity Funds
If a Qualified Opportunity Fund sells its qualifying property or receives a return of capital distribution with respect to its qualified investment in other businesses, the sale proceeds or distributions count towards satisfying the 90% investment standard if the fund reinvests them in other qualifying property within twelve months. If any plan to reinvest the proceeds in qualifying property is delayed due to a Federally declared disaster, the fund is entitled to an additional 12 months to reinvest the proceeds, provided that the fund invests the proceeds in the manner originally intended before the disaster.
The notice provides that if any Qualified Opportunity Fund’s 12-month reinvestment period includes January 20, 2020, it has an additional 12 months to reinvest sale proceeds, provided the proceeds are reinvested in the same manner as originally intended. This grants relief to only those limited funds who sold property prior to January 20, 2020.
Essentially, Notice 2020-39 grants relief that may alleviate investor concerns regarding whether a long-term investment in an economically-distressed community in the midst of this crisis is prudent, and permits fund managers an opportunity to remain compliant with the program during this pandemic.
Julie Treppa is a tax partner in Farella Braun + Martel’s San Francisco office. She can be reached at [email protected].