skip to main content

June 8, 2020

Stroock Special Bulletin

By: Jeffrey D. Uffner, Michelle M. Jewett, Brian J. Senie

On June 4, the IRS released Notice 2020-39 (the “June Notice”), which provides significant relief and extensions with respect to certain Qualified Opportunity Zone (“QOZ”) requirements impacted by delays caused by the COVID-19 pandemic.  This bulletin summarizes these relief measures and contains examples of how they may affect Qualified Opportunity Funds (“QOFs”), Qualified Opportunity Zone Businesses (“QOZBs”) and investors in QOFs.  The June Notice meaningfully extends and expands upon relief provided by Notice 2020-23, which was released on April 9 (the “April Notice”).[1]

1. 180-Day Period Extended


In general, investors recognizing taxable gain have 180 days from the date of the sale or exchange to reinvest the gain proceeds into a QOF to defer recognition of such gain. In the case of gains recognized through a partnership, a taxpayer has the option of commencing the 180-day period on December 31 of that taxable year or on the due date of the partnership’s tax return (generally March 15 of the subsequent calendar year).

New Guidance

The April Notice extended the 180-day period until July 15, 2020, for any gains recognized on or after October 4, 2019 (for which the initial 180-day period would have expired on April 1, 2020).   The June Notice further extends this deadline until December 31, 2020.  Accordingly, investors with a 180-day period that would have expired any time after April 1, 2020, and before December 31, 2020, will have until December 31, 2020, to reinvest this gain into a QOF.  Unlike the extension under the April Notice, this extension benefits the rollover of partnership gain that otherwise may have been due in September.

2.  Relief From QOF Failure Between April 1, 2020, and December 31, 2020


90% of a QOF’s assets must be qualifying QOZ property on specific testing dates (the “90% asset test”).  In general, the first such testing date is the earlier of (i) the end of the sixth month following the QOF’s formation or (ii) December 31; subsequent testing dates are June 30 and December 31 of each year. Unless due to reasonable cause, failure to meet the 90% asset test would result in penalties assessed on the QOF.

New Guidance

The June Notice provides that any failure by a QOF to meet the 90% asset test during the period between April 1 and December 31, 2020, will automatically be considered to have satisfied the reasonable cause standard for avoiding penalties.  Although this relief is available automatically, the QOF still must complete its Form 8996 otherwise accurately (and indicate that no penalties apply).

While not explicitly addressed, this relief is presumably in addition to the one-time “grace period” provided under the December 2019 Treasury Regulations for failure to satisfy the 90% asset test caused by an interest in a non-qualified QOZB.

3.  Substantial Improvement Period Tolled Through December 31, 2020


For the tangible assets of a QOZB to qualify as QOZ Business Property (“QOZBP”), in addition to being acquired by purchase from an unrelated party, the property must either be (i) substantially improved (if a pre-existing asset) (“Substantial Improvement”) or (ii) originally used by a QOZB if the asset has not yet been placed in service.  Substantial Improvement requires the QOZB to make sufficient expenditures to double the property’s cost basis over a 30-month period.

New Guidance

The June Notice provides that this 30-month period for the QOZB to substantially improve acquired property will be calculated without regard to the months between April 1, 2020, and December 31, 2020.  For example, if a QOZB bought property in February 2020, only two months would have elapsed by April 2020, and the QOZB would accordingly have an additional 28 months to substantially improve the property beginning on January 1, 2021.

4.  Working Capital Safe Harbor Extended


A QOZB cannot hold cash or various other “nonqualified financial assets” in excess of 5% of the QOZB’s total assets.  To permit infusions of cash that will be spent on QOZBP, the Treasury Regulations provide a safe harbor (the “Working Capital Safe Harbor”) under which a QOZB may hold cash pursuant to a written plan for up to 31 months provided the cash is disbursed to acquire or construct QOZBP within that time in accordance with the plan.

New Guidance

The June Notice extends the working capital safe harbor period for “not more than” an additional 24 months (i.e., 31 months plus 24 months, or up to 55 months to expend the working capital assets), by effectively treating all QOZ property as being in a federally declared disaster area (and therefore eligible for the 24-month relief provided for in previously promulgated Treasury Regulations).  This extension applies to any working capital plans in place before December 31, 2020.  However, no specific guidance is provided as to how this relief should be addressed by QOZBs in their written working capital plans.

5.  12-month QOF Reinvestment Period Extended


The Treasury Regulations permit a QOF that sells QOZ Property (or receives a return of capital from such QOZ Property) to reinvest the proceeds into other QOZ Property within a period of 12 months, provided the proceeds are continuously held in cash or short-term debt instruments.  As a result of this rule, these proceeds (which are not qualifying QOZ Property) are not counted against the QOF for purposes of the 90% asset test during that 12-month period.

New Guidance

The June Notice further extends this period by an additional 12 months, provided that the initial 12-month period was in effect on January 20, 2020, and the QOF reinvests the proceeds in the manner originally intended.  For example, a QOF that sold QOZ Property on November 1, 2019, (for which the 12-month period would include January 20, 2020) would have 24 months, or until November 2021, to redeploy such proceeds.



For More Information

Jeffrey D. Uffner

Michelle M. Jewett

Brian J. Senie

[1] For a discussion of Notice 2020-23, see

This Stroock publication offers general information and should not be taken or used as legal advice for specific situations, which depend on the evaluation of precise factual circumstances. Please note that Stroock does not undertake to update its publications after their publication date to reflect subsequent developments. This Stroock publication may contain attorney advertising. Prior results do not guarantee a similar outcome.