The IRS has granted extra reduction to Alternative Zone Funds and their traders, below IRS Income Process 2020-34 (the Income Process). This new reduction is far more beneficiant than what had been beforehand granted. It ought to now be a lot simpler for traders to speculate and for Alternative Zone Funds to adjust to the principles. The primary advantages are the next:
EXTENSION OF 180-DAY INVESTMENT PERIOD
Traders have a 180-day interval during which to put money into an Alternative Zone Fund. Beneath the Income Process, if that 180-day interval would ordinarily finish after March 31, 2020, the interval could also be prolonged till December 31, 2020. (Prior reduction prolonged this era solely till July 15, 2020.)
OPPORTUNITY ZONE PENALTIES GENERALLY INAPPLICABLE FOR 2020
An Alternative Zone Fund should usually fulfill varied standards, and these standards are evaluated on two testing dates every year. If these standards will not be glad, particular Alternative Zone penalties could also be imposed on the Alternative Zone Fund. Beneath the Income Process, nevertheless, these penalties will usually not be imposed with respect to the 2020 tax 12 months. (For funds that don’t use the calendar 12 months, the Alternative Zone penalties is not going to be utilized for a tax 12 months that features a testing date that happens on or between April 1, 2020, and December 31, 2020.)
EXTENSION OF WORKING CAPITAL EXCEPTIONS
A “certified alternative zone enterprise” usually has a 31-month protected harbor for holding working capital, and rules enable for a 24-month extension when the enterprise is positioned inside a Federally declared catastrophe [area]. The Income Process confirms that this 24-month extension is offered for any working capital held earlier than December 31, 2020.
As well as, the working capital protected harbor (in addition to related protected harbors for, e.g., tangible property) could also be availed of greater than as soon as, topic to a 62-month limitation. The Income Process gives that this 62-month limitation may be prolonged by 24 months on account of the COVID-19 catastrophe.
EXTENDED PERIOD FOR SUBSTANTIALLY IMPROVING PROPERTY
A method for an Alternative Zone Fund to qualify as such is to “considerably enhance” its tangible property, and property is “considerably improved” if the idea of the property is doubled inside a 30-month interval on account of enhancements which might be made to the property. For instance, if an Alternative Zone Fund pays $1M to accumulate a constructing and spends one other $1M to enhance the constructing inside a 30-month interval, the constructing can be considerably improved.
The Income Process extends this 30-month substantial enchancment interval. Because of COVID-19, the interval from April 1, 2020, via December 31, 2020, could also be disregarded, which can give an Alternative Zone Fund (or a professional alternative zone enterprise) a further 9 months to double its foundation in its property.
EXTENDED REINVESTMENT PERIOD
A minimum of 90% of an Alternative Zone Fund’s belongings have to be “certified alternative zone property” (QOZP), which doesn’t embody money. Nonetheless, if an Alternative Zone Fund receives proceeds from QOZP, the proceeds could also be handled as QOZP if they’re reinvested inside 12 months and sure different circumstances are glad. Rules enable for a 12-month extension when the reinvestment is delayed as a consequence of a Federally declared catastrophe, supplied that the proceeds are invested within the method that was supposed earlier than the catastrophe.
The Income Process gives that this 12-month extension could also be accessible if the fund’s reinvestment interval consists of January 20, 2020.