Taxpayers who want to elect to use the final Opportunity Zone regulations might need to amend returns they’ve already filed.
Erika Reigle, assistant to the branch 5 chief, IRS Office of Associate Chief Counsel (Income Tax and Accounting), said March 6 that she assumed it would be necessary for taxpayers to amend 2018 returns that have already been filed if they plan to rely on the final regulations (T.D. 9889).
Speaking at a Federal Bar Association conference in Washington, Reigle also reiterated that taxpayers can’t pick and choose between provisions of the proposed regs (REG-115420-18 and REG-120186-18) and the final regs.
The final regs, released at the end of 2019, don’t become effective until tax years ending after March 13, 2020. But taxpayers can elect to apply the final regs retroactively. Confusion has loomed around the effective date provision, with practitioners unsure if the final regs had to be applied in their entirety.
Lisa M. Zarlenga of Steptoe & Johnson LLP noted that taxpayers who relied on the proposed regs for determining whether they had eligible section 1231 gain to invest, and who consequently missed the new deadline provided in the final regs, might be forced to stick with the proposed regs rather than relying on the final regs retroactively.
The Opportunity Zone program, created by the Tax Cuts and Jobs Act, allows investors to defer, reduce, and in some cases eliminate tax on capital gains by investing in qualified opportunity funds.
Cure Period Once Per Business
The final regs included a six-month cure period for entities that failed to meet the qualified Opportunity Zone business requirements, but the cure period can be used only once.
Reigle noted that there was some confusion between the preamble and the regulatory text on this issue. She clarified that the cure period can be used once per Opportunity Zone business, not just once per qualified opportunity fund.
Leila Vaughan of Royer Cooper Cohen Braunfeld LLC said that is helpful if a fund has multiple Opportunity Zone businesses because they can each take advantage of the cure period.