AICPA Submits Recommendations to IRS on Proposed Regs on Investing in Qualified Opportunity Funds

The American Institute of CPAs (AICPA) has submitted comments to the Internal Revenue Service (IRS) on proposed regulation Reg-120186-18 related to investing in Qualified Opportunity Funds (QOF).

Reg-120186-18 provides guidance under new section 1400Z-2 of the Internal Revenue Code relating to gains that may be deferred as a result of a taxpayer’s investment in a QOF, as well as special rules for an investment in a QOF held by a taxpayer for at least 10 years.

The AICPA has submitted recommendations on the proposed regulations related to investing in qualified opportunity funds on the following areas:

· 180-Day Period for a Partner Electing Deferral and Certain Partnership Transactions;

· Gains from Section 1231 Property;

· Dispositions of QOF Property with Respect to Investments Held for at Least 10 Years;

· Pre-Finalization Reliance on Prop. Reg. § 1.1400Z2(c)-1;

· Distributions in the Case of a Mixed-Funds Investment in a QOF Partnership;

· Disguised Sale Rules and Mixed-Funds Investments;

· Step-up to Fair Market Value of the Underlying Investment in a QOF at the Death of the QOF Investor;

· Rollover of Gain by Either Grantor or Trustee of a Grantor Trust; and

· Other Issues Requiring Guidance or Clarification Related to Section 1400Z-2.

Reg-120186-18 also updates portions of previously proposed regulations under section 1400Z-2 to address various issues, including: the transactions that may trigger the inclusion of gain that a taxpayer has elected to defer under section 1400Z-2; the timing and amount of the deferred gain that is included; the treatment of leased property used by a qualified opportunity zone business; the use of qualified opportunity zone business property in the qualified opportunity zone; the sourcing of gross income to the qualified opportunity zone business; and the “reasonable period” for a QOF to reinvest proceeds from the sale of qualifying assets without paying a penalty. These proposed regulations will affect QOFs and taxpayers that invest in QOFs.