Menu
Tax Notes logo

Opportunity Zone Deadlines Could Be Extended Due to COVID-19

Posted on Apr. 3, 2020

Major disaster declarations made by states to address the COVID-19 pandemic could unlock deadline extensions for investments in federal Opportunity Zones, according to practitioners.

In a March 30 alert, attorneys at Polsinelli PC said they believe the declarations will extend the deadline for spending cash or other financial assets held by an Opportunity Zone business under a working capital safe harbor plan by up to 24 months.

The declarations will also give opportunity funds an additional 12 months to reinvest funds when they receive capital or proceeds from the sale of qualified property, the attorneys said.

Noting that President Trump has issued disaster declarations for New York, Washington, California, New Jersey, Iowa, Florida, Texas, North Carolina, and Louisiana, the Polsinelli attorneys said they expect more states to follow.

The attorneys explained that Opportunity Zone businesses can typically hold cash and short-term debt if they're subject to a plan that requires the funds to be spent within 31 months.

However, under a provision of the final Opportunity Zone regulations, the 31-month period can be extended for another 24 months if the working capital plan relates to a project within a zone that is part of a federally declared disaster area, as long as the business otherwise meets the requirements for the working capital safe harbor, they said. 

The extensions don't apply to the amount of time investors have to invest capital gains in an opportunity fund or the time an opportunity fund has to invest its funds, the attorneys noted.

Michael Novogradac, managing partner at Novogradac and Co. LLP, told Tax Notes April 2 that the Polsinelli alert is "probably accurate, though IRS confirmation is needed."

"The area of disaster relief under existing guidance and Treasury authority under 7508A is a bit tangled," Novogradac said, adding that the situation "definitely fits the metaphor of unpeeling an onion."

According to Novogradac, a wide variety of deadline extensions are needed for the Opportunity Zone community. His firm's Opportunity Zone working group is planning to send a letter to the IRS and Treasury requesting the relief early next week, he said. 

Novogradac said the group is seeking relief related to the substantial improvement test deadline and the working capital safe harbor period, as well as the 180-day investment period, qualified opportunity fund investment deadlines on initial capital and reinvested capital, and the six-month cure period for qualified Opportunity Zone businesses.

The federal Tax Cuts and Jobs Act created the Opportunity Zone program to spur investment in economically distressed communities through federal tax breaks. Under the program, corporations and individuals can receive tax breaks by investing unrealized capital gains in Opportunity Zones. However, critics have raised questions about the extent to which the program will benefit low-income people in low-income neighborhoods.

The IRS did not respond to a request for comment by press time. 

Copy RID