September 27, 2021

Volume XI, Number 270

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September 24, 2021

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IRS Provides New Markets Tax Credit and Opportunity Zone Relief

The IRS has issued relief for qualified opportunity funds (QOFs) participating in the opportunity zones program and for community development entities (CDEs) and qualified active low-income community businesses (QALICBs) participating in the new markets tax credit (NMTC) program. 

New Markets Tax Credit Relief

On June 12, 2020, the IRS issued NMTC relief under IRS Notice 2020-49 to CDEs and QALICBs for certain time-sensitive acts required to be performed between April 1, 2020, and December 31, 2020.

CDEs originally required to invest cash received from a qualified equity investment (QEI) in a qualified low-income community investment (QLICI) or to redeploy capital in a QLICI between April 1, 2020, and December 31, 2020, will meet the NMTC requirements if done by December 31, 2020.

QALICBs originally required to expend the proceeds of an equity investment or loan by a CDE for the construction of real property between April 1, 2020, and December 31, 2020, will meet the NMTC requirement if the proceeds are expended by December 31, 2020.

Opportunity Zones Relief

On June 4, 2020, the IRS issued IRS Notice 2020-39 to provide relief for certain time-sensitive actions for QOFs. 

If a taxpayer’s 180th day to invest in a QOF would have fallen on or after April 1, 2020, and before December 31, 2020, the taxpayer may still invest its eligible gains into a QOF until December 31, 2020. This notice extends the 180-day investment deadline that was already postponed through July 15, 2020, via IRS Notice 2020-23. Further, the period starting on April 1, 2020, and ending December 31, 2020, is suspended when determining the 30-month substantial improvement period for QOFs and qualified opportunity zone businesses. 

For semiannual testing dates from April 1, 2020, through December 31, 2020, a QOF’s failure to hold less than 90% of its assets in qualified opportunity zone property is deemed to be due to reasonable cause under Internal Revenue Code Section 1400Z-2(f)(3) and such failure will not prevent (a) an entity from qualifying as a QOF and (b) an investment in a QOF from being a qualifying investment. Likewise, the QOF will not be liable for the penalty under Section 1400Z-2(f) for such failure during this period. 

IRS Notice 2020-39 also allows all qualified opportunity zone businesses an additional 24 months to satisfy the 31-month working capital safe harbor under the Treasury Regulations. Further, if a QOF’s reinvestment is delayed due to a federally declared disaster, the QOF is granted an additional 12 months to reinvest the proceeds it received from the sale or other disposition of qualified opportunity zone property or from a return of capital in qualified opportunity zone stock or partnership interests.

© 2021 Jones Walker LLPNational Law Review, Volume X, Number 167
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About this Author

Jonathan Katz Federal Tax Attorney Jones Walker
Partner

Mr. Katz is a partner in the firm's Tax & Estates Practice Group. Mr. Katz' practice focuses predominately on federal taxation, with a particular focus in federal and state new markets tax credit and historic rehabilitation tax credit transactions. In addition to his tax credit practice, his federal tax practice includes estate planning and administration, federal alcohol excise tax compliance, nonprofit formation and compliance, S corporation compliance, and business organizations.  

In his tax credit practice, Mr. Katz represents...

504-582-8314
Aileen Thomas, Banking Attorney, Jones Walker Law Firm
Partner

Aileen Thomas is a partner in the firm's Business & Commercial Transactions Practice Group in the Jackson office and a member of the firm's board of directors. As a bond attorney, Ms. Thomas regularly serves as bond, underwriter, and trustee counsel for a myriad of clients, including non-profit and public hospitals, institutions of higher learning, local school districts, and national and regional investment banking firms. In addition to her public finance practice, Ms. Thomas assists clients with large economic development and expansion projects, and is actively...

601.949.4751
Shawn J. Daray Associate New Orleans Tax Practice Group
Associate

Prior to joining Jones Walker, Shawn served as an extern for the Litigation Division of the Louisiana Department of Revenue, where he published articles on effects of the Amazon Tax for online retailers and state retroactive tax laws.

Shawn was previously a summer associate where he researched contract, corporate, and tax law on transactional issues for a tax and maritime firm. Shawn also drafted memorandum on maritime lien priority and limitation of liability.

504-582-8488
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