On June 4, 2020, the Internal Revenue Service issued Notice 2020-39, which is available here. Notice 2020-39 provides temporary relief to qualified opportunity funds (QOFs) and their investors as a result of the COVID-19 pandemic, as summarized below.

• Extension of the 180-day period to invest in a qualified opportunity fund. To obtain the benefits under the qualified opportunity zone rules (QOZ Rules), investors have 180 days after realizing a capital gain to reinvest the proceeds in a qualified opportunity fund (QOF). Notice 2020-39 provides that investors whose 180-day period would have ended between April 1, 2020 and December 31, 2020 now have until December 31, 2020 to make an eligible investment in a QOF.
• QOFs get relief from the 90% asset test. The QOZ Rules require a QOF to hold 90% of its assets in qualified opportunity zone property. Such a 90% test is determined by the average of the percentage of qualified opportunity zone property held by that QOF as measured (i) on the last day of the first six-month period of the QOF’s taxable year and (ii) on the last day of the QOF’s taxable year. Notice 2020-39 provides that there are no penalties for any QOF that fails to meet this test whose last day of the first six-month period of the taxable year or the last day of the taxable year falls between April 1, 2020, and December 31, 2020.
• 30-month substantial improvement period is extended. A QOF that purchases existing property within an opportunity zone, which typically includes real estate developers, must “substantially improve” such property. In general, the substantial improvement requirement is met only if, within 30 months after acquisition, the QOF spends more to improve the property than the adjusted basis of the property. Notice 2020-39 tolls the period from April 1, 2020 to December 31, 2020, in determining the 30-month substantial improvement period.
• The 31-month working capital safe harbor is extended. In general, a QOF may rely on a 31-month safe harbor to deploy working capital pursuant to a written plan and still meet the QOZ Rules (and in certain circumstances may rely on an additional 31-month safe harbor). Pursuant to the national emergency declarations issued by the President in response to COVID-19, assets within an opportunity zone are also considered to be within a federally declared disaster area. As a result, a QOF may have an additional 24 months to expend such working capital, for a total of 86 months.
• QOF 12-month reinvestment period is extended. A QOF may roll over proceeds from a return of capital or sale of its QOZ property within 12 months and maintain the benefits under the QOZ Rules. Notice 2020-39 provides that if such QOF’s 12-month reinvestment period includes January 20, 2020, then the QOF may have an additional 12 months to make such a reinvestment.