Opportunity Zone Best Practices During COVID-19

Client Alert
April 20, 2020

As we all re-examine business practices in the uncharted waters of COVID-19, the Sullivan Opportunity Zone Practice Group will be publishing concise reminders of best practices.

Guidance abounds, including our own, relating to the working capital safe harbor and the extension of time periods in light of the national pandemic. The predicate to the safe harbor and any extension relief is the existence of a written plan. That leads us to today’s reminder.

When taxpayers file tax returns claiming the tax exclusion on any gain realized after their ten-year hold period, any IRS audit of such returns will "look back." Much like IRS audits involving Net Operating Losses, taxpayers will have to prove compliance with the Opportunity Zone statute from the time of the initial investment in a Qualified Opportunity Fund. Detailed records will help taxpayers survive challenges. Taxpayers (and third-party fund sponsors) should keep all records beginning with the initial investment in the Opportunity Fund through the disposition of the investment and beyond. This practice, of detailed documentation, will be even more valuable if one seeks to take advantage of any extension relief offered under the Opportunity Zone Regulations, and therefore the taxpayer must prove that COVID-19 caused a disruption in one’s documented plan. This "best practice" will also ensure that, upon an IRS audit, a taxpayer does not lose any of the Opportunity Zone benefits due to the lack of appropriate documentation.

Right now, we have the time to do it right. In almost all cases, the more detail, the better, and it is always best practice to maintain all records.

The Sullivan & Worcester Opportunity Zone Practice Group is available to assist you with any of your questions. 

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Sullivan has developed a rapid response team of attorneys to help our clients and our communities cope with the impact of the COVID-19 pandemic and understand the implications of the CARES Act and other actions taken by state governments and the federal government. Please refer to Sullivan’s resource center at www.sullivanlaw.com/COVID19 for more information and for access to Sullivan’s library of related advisories.

Please know that Sullivan is focusing substantial efforts to provide assistance to businesses and individuals affected by COVID‑19 and benefited by the CARES Act. If you have questions about how to move forward and navigate the novel legal issues raised by COVID‑19 and/or the CARES Act, please contact your primary Sullivan attorney or send a message to CARES@sullivanlaw.com.

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