Qualified Opportunity Zones Update

The final regulations governing Qualified Opportunity Zones were released in December 2019 (Treasury Decision 9889), and were published into the Federal Register in January 2020. Since that time, practitioners and taxpayers have had lingering questions about several key elements contained in the final regulations.

In response, the Treasury published correcting amendments to the final regulations in April 2020. Earlier this month, the Treasury again published correcting amendments to the final regulations, finally providing some long-awaited clarity to Qualified Opportunity Zones stakeholders in the following area.

Rules for Qualified Opportunity Zone Businesses (QOZB’s) with a working capital safe harbor written plan have been clarified, explicitly providing that the “substantially all tangible property standard” (also known as the “70% tangible property test”) will automatically be satisfied during the working capital safe harbor period(s), and that any tangible property planned to be acquired under the written plan will be automatically treated as qualified opportunity zone business property (QOZBP) during the safe harbor period(s). Importantly, however, working capital assets covered by the safe harbor are not QOZBP for any other purpose, and working capital assets are not treated as tangible property following the end of the safe harbor period(s).

The self-decertification process for a Qualified Opportunity Fund (QOF) has also been simplified, to be effected in a form and manner as may be prescribed by the IRS. We expect the IRS to modify Form 8996 to accommodate such QOF de-certifications.

The complex nature of opportunity zone structures, particularly those with working capital safe harbor plans, continue to require the involvement of technically proficient professionals. Please reach out to colleagues Brian Duren, Ben Darwin and Jeremy Siebert for any and all of your Qualified Opportunity Zone needs!

Source: IRS.gov