Investing in Qualified Opportunity Funds; Correcting Amendments, 19082-19087 [2020-07013]
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Federal Register / Vol. 85, No. 66 / Monday, April 6, 2020 / Rules and Regulations
before further flight, remove from service the
RH rear fitting and its bolts.
(ii) For any RH rear fitting that has
accumulated less than 1,470 total hours TIS,
remove from service the RH rear fitting and
its bolts before the fitting accumulates 1,470
total hours TIS.
(iii) For any LH rear fitting that has
accumulated 13,600 or more total hours TIS,
before further flight, remove from service the
LH rear fitting and its bolts.
(iv) For any LH rear fitting that has
accumulated less than 13,600 total hours TIS:
(A) If a Major Inspection ‘‘G’’ has not been
completed since the LH rear fitting has been
installed, remove from service the LH rear
bolts during the next Major Inspection ‘‘G’’
inspection; or
Note 1 to paragraph (e)(1)(iv)(A) of this AD:
Major Inspection ‘‘G’’ (7,500 hours TIS
between overhauls) is defined in
Maintenance Manual MET 05–29–00–601.
(B) If a Major Inspection ‘‘G’’ has been
completed since the LH rear fitting has been
installed, before further flight, remove from
service the LH rear bolts; and
(C) Remove from service the LH rear fitting
before the fitting accumulates 13,600 total
hours TIS.
(2) Thereafter following paragraph (e)(1) of
this AD, remove from service any RH rear
fitting and its bolts at intervals not to exceed
1,470 hours TIS, remove from service any LH
rear fitting at intervals not to exceed 13,600
hours TIS, and remove from service any LH
rear bolts during each Major Inspection ‘‘G.’’
(3) During the next Major Inspection ‘‘G,’’
remove from service the MGB suspension bar
front bolts. Thereafter, remove from service
the front bolts during each Major Inspection
‘‘G.’’
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(f) Alternative Methods of Compliance
(AMOCs)
(1) The Manager, Safety Management
Section, Rotorcraft Standards Branch, FAA,
may approve AMOCs for this AD. Send your
proposal to: Matt Fuller, Senior Aviation
Safety Engineer, Safety Management Section,
Rotorcraft Standards Branch, FAA, 10101
Hillwood Pkwy., Fort Worth, TX 76177;
telephone 817–222–5110; email 9-ASW-FTWAMOC-Requests@faa.gov.
(2) For operations conducted under a 14
CFR part 119 operating certificate or under
14 CFR part 91, subpart K, the FAA suggests
that you notify your principal inspector, or
lacking a principal inspector, the manager of
the local flight standards district office or
certificate holding district office, before
operating any aircraft complying with this
AD through an AMOC.
(g) Additional Information
(1) Airbus Helicopters Alert Service
Bulletin No. AS332–01.00.90, Revision 0,
dated November 21, 2018, which is not
incorporated by reference, contains
additional information about the subject of
this AD. For service information identified in
this AD, contact Airbus Helicopters, 2701 N
Forum Drive, Grand Prairie, TX 75052;
telephone 972–641–0000 or 800–232–0323;
fax 972–641–3775; or at https://
www.airbus.com/helicopters/services/
technical-support.html. You may view the
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referenced service information at the FAA,
Office of the Regional Counsel, Southwest
Region, 10101 Hillwood Pkwy., Room 6N–
321, Fort Worth, TX 76177.
(2) The subject of this AD is addressed in
European Union Aviation Safety Agency
(previously European Aviation Safety
Agency) (EASA) AD No. 2018–0260, dated
December 3, 2018. You may view the EASA
AD on the internet at https://
www.regulations.gov in Docket No. FAA–
2019–1015.
(h) Subject
Joint Aircraft Service Component (JASC)
Code: 6320 Main Rotor Gearbox.
Issued on March 27, 2020.
Lance T. Gant,
Director, Compliance & Airworthiness
Division, Aircraft Certification Service.
[FR Doc. 2020–07138 Filed 4–3–20; 8:45 am]
BILLING CODE 4910–13–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
RIN 1545–BO4
Investing in Qualified Opportunity
Funds; Correcting Amendments
Internal Revenue Service (IRS),
Treasury.
ACTION: Correcting amendments.
AGENCY:
This document contains
corrections to Treasury Decision 9889,
which was published in the Federal
Register on Monday, January 13, 2020.
Treasury Decision 9889 contained final
regulations under the Internal Revenue
Code (the ‘‘Code) that govern the extent
to which taxpayers may elect the
Federal income tax benefits with respect
to certain equity interests in a qualified
opportunity fund (QOF).
DATES: These corrections are effective
on April 1, 2020, and applicable as of
January 13, 2020.
FOR FURTHER INFORMATION CONTACT:
Concerning section 1400Z–2 and these
regulations generally, Alfred H. Bae,
(202) 317–7006, or Kyle C. Griffin, (202)
317–4718, of the Office of Associate
Chief Counsel (Income Tax and
Accounting); concerning issues related
to C corporations and consolidated
groups, Jeremy Aron-Dine, (202) 317–
6848, or Sarah Hoyt, (202) 317–5024, of
the Office of Associate Chief Counsel
(Corporate); concerning issues related to
gains from financial contracts, REITs, or
RICs, Andrea Hoffenson or Pamela Lew,
(202) 317–7053, of the Office of
Associate Chief Counsel (Financial
SUMMARY:
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Background
The final regulations (TD 9889) that
are the subject of this correction are
under section 1400Z–2 of the Code.
Need for Correction
As published on January 13, 2020 (85
FR 1866) contained errors that may
prove to be misleading and need to be
corrected.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
[TD 9889]
PO 00000
Institutions and Products); concerning
issues related to investments by foreign
persons, Eric Florenz, (202) 317–6941,
or Milton Cahn (202) 317–6937, of the
Office of Associate Chief Counsel
(International); concerning issues
related to partnerships, S corporations
or trusts, Marla Borkson, Sonia Kothari,
or Vishal Amin, at (202) 317–6850, and
concerning issues related to estates and
gifts, Leslie Finlow or Lorraine Gardner,
at (202) 317–6859, of the Office of
Associate Chief Counsel (Passthroughs
and Special Industries). These numbers
are not toll-free numbers.
SUPPLEMENTARY INFORMATION:
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Correction of Publication
Accordingly, 26 CFR part 1 is
corrected by making the following
correcting amendments:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
continues to read in part as follows:
■
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section1.1400Z2–0 is
amended:
■ a. By revising the entry for
§ 1.1400Z2(a)–1(d)(2);
■ b. In the entry for § 1.1400Z2(b)–1(h)
introductory text, by removing the
language ‘‘S corporations’’; and
■ c. By revising the entry for
§ 1.1400Z2(d)–1(a)(4).
The revisions read as follows:
■
§ 1.1400Z2–0
*
Table of Contents.
*
*
*
*
§ 1.1400Z2(a)–1 Deferring tax on
capital gains by investing in opportunity
zones.
*
*
*
*
*
(d) * * *
(2) Annual reporting of qualifying
investments.
*
*
*
*
*
§ 1.1400Z2(d)–1 Qualified
opportunity funds and qualified
opportunity zone businesses.
(a) * * *
(4) [Reserved]
*
*
*
*
*
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Par. 3. Section 1.1400Z2(a)–1 is
amended:
■ a. In paragraph (b)(3) by adding the
language ‘‘described in § 1.1400Z2(d)–
2(d)(4)(ii) that is’’ after the words
‘‘means the test’’;
■ b. In the last sentence of paragraph
(b)(11)(ix)(A)(2), by removing the
language ‘‘publications’’ and adding in
its place ‘‘instructions’’;
■ c. In paragraph (b)(32), by removing
the word ‘‘business’’;
■ d. In the last sentence of paragraph
(c)(1)(iii)(A), by removing the word
‘‘only’’ before ‘‘apply’’; and
■ e. By revising paragraphs (d)(2), (g)(2)
introductory text, and (g)(2)(i).
The revisions read as follows:
■
§ 1.1400Z2(a)–1 Deferring tax on capital
gains by investing in opportunity zones.
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*
*
*
*
*
(d) * * *
(2) Annual reporting of qualifying
investments. An eligible taxpayer must
report any qualifying investment held at
any point during the taxable year in
accordance with guidance published in
the Internal Revenue Bulletin or in
forms and instructions (see
§§ 601.601(d)(2) and 601.602 of this
chapter). A failure to make this report
for any given taxable year will result in
a rebuttable presumption that the
taxpayer has had an inclusion event
described in § 1.1400Z2(b)–1(c) during
that year. The presumption described in
the previous sentence may be rebutted
by the taxpayer making the report
described in the first sentence of this
paragraph (d)(2) or by the taxpayer
establishing to the satisfaction of the
Commissioner that an inclusion event
described in § 1.1400Z2(b)–1(c) did not
occur during that taxable year.
*
*
*
*
*
(g) * * *
(2) Prior periods. With respect to
eligible gains that would be recognized
(absent the making of a deferral
election) during the portion of a
taxpayer’s first taxable year ending after
December 21, 2017, and during taxable
years beginning after December 21,
2017, and on or before March 13, 2020,
a taxpayer may choose either—
(i) To apply the section 1400Z–2
regulations, if applied in a consistent
manner for all such taxable years
(reliance by a taxpayer under paragraph
(g)(2)(ii) of this section, § 1.1400Z2(b)–
1(j)(2)(ii), § 1.1400Z2(d)–1(e)(2)(ii),
§ 1.1400Z2(d)–2(e)(2)(ii), or
§ 1.1400Z2(f)–1(d)(2)(ii), is disregarded
solely for purposes of the consistency
requirement under this paragraph
(g)(2)(i)); or
*
*
*
*
*
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Par. 4. Section 1.1400Z2(b)–1 is
amended:
■ a. In the last sentence of paragraph
(c)(6)(ii)(B), by removing ‘‘§ 1400Z2(c)–
1(b)(1)(ii)’’ and adding in its place
‘‘§ 1.1400Z2(c)–1(b)(1)(ii)’’; and
■ b. By revising paragraphs (j)(2)
introductory text and (j)(2)(i).
The revisions read as follows:
■
§ 1.1400Z2(b)–1 Inclusion of gains that
have been deferred under section 1400Z–
2(a)
*
*
*
*
*
(j) * * *
(2) Prior periods. With respect to the
portion of a taxpayer’s first taxable year
ending after December 21, 2017, and for
taxable years beginning after December
21, 2017, and on or before March 13,
2020, a taxpayer may choose either—
To apply the section 1400Z–2
regulations, if applied in a consistent
manner for all such taxable years
(reliance by a taxpayer on paragraph
(j)(2)(ii) of this section, § 1.1400Z2(a)–
1(g)(2)(ii), § 1.1400Z2(d)–1(e)(2)(ii),
§ 1.1400Z2(d)–2(e)(2)(ii), or
§ 1.1400Z2(f)–1(d)(2)(ii), is disregarded
solely for purposes of the consistency
requirement under this paragraph
(j)(2)(i)); or
*
*
*
*
*
§ 1.1400Z2(c)–1
[Amended]
Par. 5. Section 1.1400Z2(c)–1 is
amended:
■ a. In the first sentence of paragraph
(b)(2)(ii)(A), by removing the language
‘‘one of more partnerships’’ and adding
in its place ‘‘one or more partnerships’’;
and
■ b. In the third sentence of paragraph
(b)(2)(ii)(B)(1), by removing
‘‘§ 1400Z2(b)–1(c)(6)(iv)(B)’’ and adding
in its place ‘‘§ 1.1400Z2(b)–
1(c)(6)(iv)(B)’’.
■ Par. 6. Section 1.1400Z2(d)–1 is
amended:
■ a. In the first sentence of paragraph
(b)(2)(i)(C)(2)(ii), by removing the
language ‘‘not later than’’ and adding in
its place ‘‘not earlier than’’;
■ b. By revising paragraph (b)(4)(ii);
■ c. In the first sentence of paragraph
(c)(2)(i)(C)(2), by removing the language
‘‘is made by’’ and adding in its place
‘‘may be made by’’;
■ d. In paragraph (d)(3)(v)(D), by
removing the language ‘‘receive up to’’
and adding in its place ‘‘receive not
more than’’;
■ e. By removing paragraphs (d)(3)(v)(F)
and (G);
■ f. By revising paragraphs (d)(3)(vi) and
(vii);
■ g. By redesignating paragraphs
(d)(3)(ix) and (x) as (d)(3)(viii) and (ix),
respectively; and
■
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19083
h. By revising paragraphs (d)(6)(i) and
(iii), (e)(2) introductory text, and
(e)(2)(i).
The revisions read as follows:
■
§ 1.1400Z2(d)–1 Qualified opportunity
funds and qualified opportunity zone
businesses.
*
*
*
*
*
(b) * * *
(4) * * *
(ii) Property owned by an eligible
entity—(A) Property purchased or
constructed. The value of each property
owned by an eligible entity that is
acquired by purchase for fair market
value or constructed for fair market
value is the eligible entity’s unadjusted
cost basis of the asset under section
1012 or section 1013. Solely for
purposes of this paragraph (b)(4)(ii)(A),
the acquisition by a QOF of qualified
opportunity zone stock or a qualified
opportunity zone partnership interest is
treated as a purchase of such interest by
the QOF.
*
*
*
*
*
(d) * * *
(3) * * *
(vi) Safe harbor for section 1397C
requirements other than ‘‘sin business’’
prohibition—(A) Maximum 62-month
safe harbor for start-up businesses.
Property described in paragraphs
(d)(3)(vi)(B), (C), and (D) of this section
may benefit from one or more 31-month
periods, for a total of 62 months, in the
form of multiple overlapping or a
sequential application of the working
capital safe harbor if—
(1) Each application independently
satisfies all of the requirements in
paragraphs (d)(3)(v)(A) through (C) of
this section;
(2) The working capital assets from an
expiring 31-month period were
expended in accordance with the
requirements in paragraphs (d)(3)(v)(A)
through (C) of this section;
(3) The subsequent infusions of
working capital assets form an integral
part of the plan covered by the initial
working capital safe harbor period; and
(4) Each overlapping or sequential
application of the working capital safe
harbor includes a substantial amount of
working capital assets (which may
include debt instruments described in
section 1221(a)(4)).
(B) Safe harbor for gross income
derived from the active conduct of
business. Solely for purposes of
applying the 50-percent test in section
1397C(b)(2) to the definition of a
qualified opportunity zone business in
section 1400Z–2(d)(3), if any gross
income is derived from property that
paragraph (d)(3)(v) of this section treats
as a reasonable amount of working
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Federal Register / Vol. 85, No. 66 / Monday, April 6, 2020 / Rules and Regulations
capital, then that gross income is
counted toward satisfaction of the 50percent test.
(C) Safe harbor for use of intangible
property. Solely for purposes of
applying the use requirement in section
1397C(b)(4) to the definition of a
qualified opportunity zone business
under section 1400Z–2(d)(3), intangible
property purchased or licensed by the
trade or business, pursuant to the
reasonable written plan with a written
schedule for the expenditure of the
working capital, satisfies the use
requirement during any period in which
the business is proceeding in a manner
that is substantially consistent with
paragraphs (d)(3)(v)(A) through (C) of
this section.
(D) Safe harbor for working capital
and property on which working capital
is being expended—(1) Working capital.
If paragraph (d)(3)(v) of this section
treats property of an entity that would
otherwise be nonqualified financial
property as being a reasonable amount
of working capital because of
compliance with the three requirements
of paragraphs (d)(3)(v)(A) through (C) of
this section, the entity satisfies the
requirements of section 1400Z–
2(d)(2)(D)(i) only during the working
capital safe harbor period(s) for which
the requirements of paragraphs
(d)(3)(v)(A) through (C) of this section
are satisfied; however such property is
not qualified opportunity zone business
property for any purpose.
(2) Tangible property acquired with
covered working capital. If tangible
property referred to in paragraph
(d)(3)(v)(A) of this section is expected to
satisfy the requirements of section
1400Z–2(d)(2)(D)(i) as a result of the
planned expenditure of working capital
described in paragraph (d)(3)(v)(A), and
is purchased, leased, or improved by the
trade or business, pursuant to the
written plan for the expenditure of the
working capital, then the tangible
property is treated as qualified
opportunity zone business property
satisfying the requirements of section
1400Z–2(d)(2)(D)(i), during that and
subsequent working capital periods the
property is subject to, for purposes of
the 70-percent tangible property
standard in section 1400Z–2(d)(3).
(vii) Examples. The following
examples illustrate the rules of
paragraphs (d)(3)(v) and (vi) of this
section.
(A) Example 1. General application of
working capital safe harbor—(1) Facts.
QOF F creates a domestic C corporation
E to open a fast-food restaurant and
acquires almost all of the equity of E in
exchange for cash. E has a written plan
and a 20-month schedule for the use of
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this cash to establish the restaurant.
Among the planned uses for the cash are
identification of favorable locations in
the qualified opportunity zone, leasing
a building suitable for such a restaurant,
outfitting the building with appropriate
equipment and furniture (both owned
and leased), necessary security deposits,
obtaining a franchise and local permits,
and the hiring and training of kitchen
and wait staff. Not-yet-disbursed
amounts were held in assets described
in section 1397C(e)(1), and these assets
were eventually expended in a manner
consistent with the plan and schedule.
(2) Analysis. E’s use of the cash
qualifies for the working capital safe
harbor described in paragraph (d)(3)(v)
of this section.
(B) Example 2. Multiple applications
of working capital safe harbor—(1)
Facts. QOF G creates a domestic C
corporation H to start a new technology
company and acquires equity of H in
exchange for cash on Date 1. In addition
to H’s rapid deployment of capital
received from other equity investors, H
writes a plan with a 30-month schedule
for the use of the Date 1 cash. The plan
describes use of the cash to research and
develop a new technology (Technology),
including paying salaries for engineers
and other scientists to conduct the
research, purchasing, and leasing
equipment to be used in research and
furnishing office and laboratory space.
Approximately 18 months after Date 1,
on Date 2, G acquires additional equity
in H for cash, and H writes a second
plan. This new plan has a 25-month
schedule for the development of a new
application of existing software
(Application), to be marketed to
government agencies. Among the
planned uses for the cash received on
Date 2 are paying development costs,
including salaries for software
engineers, other employees, and thirdparty consultants to assist in developing
and marketing the new application to
the anticipated customers. Not-yetdisbursed amounts that were scheduled
for development of the Technology and
the Application were held in assets
described in section 1397C(e)(1), and
these assets were eventually expended
in a manner substantially consistent
with the plans and schedules for both
the Technology and the Application.
(2) Analysis. H’s use of both the cash
received on Date 1 and the cash
received on Date 2 qualifies for the
working capital safe harbor described in
paragraph (d)(3)(v) of this section.
(C) Example 3. General application of
working capital safe harbor—(1) Facts.
In 2019, Taxpayer H realized $w million
of capital gains and within the 180-day
period invested $w million in QOF T,
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a qualified opportunity fund. QOF T
immediately acquired from partnership
P a partnership interest in P, solely in
exchange for $w million of cash. P
immediately placed the $w million in
working capital assets, which remained
in working capital assets until used. P
had written plans to acquire land in a
qualified opportunity zone on which it
planned to construct a commercial
building. Of the $w million, $x million
was dedicated to the land purchase, $y
million to the construction of the
building, and $z million to ancillary but
necessary expenditures for the project.
The written plans provided for purchase
of the land within a month of receipt of
the cash from QOF T and for the
remaining $y and $z million to be spent
within the next 30 months on
construction of the building and on the
ancillary expenditures. All expenditures
were made on schedule, consuming the
$w million. During the taxable years
that overlap with the first 31-month
period, P had no gross income other
than that derived from the amounts held
in those working capital assets. Prior to
completion of the building, P’s only
assets were the land it purchased, the
unspent amounts in the working capital
assets, and P’s work in process as the
building was constructed.
(2) Analysis—P met the three
requirements of the safe harbor
provided in paragraphs (d)(3)(v)(A)
through (C) of this section. P had a
written plan to spend the $w received
from QOF T for the acquisition,
construction, and/or substantial
improvement of tangible property in a
qualified opportunity zone, as defined
in section 1400Z–1(a). P had a written
schedule consistent with the ordinary
start-up for a business for the
expenditure of the working capital
assets. And, finally, P’s working capital
assets were actually used in a manner
that was substantially consistent with
its written plan and the ordinary startup of a business. First, the $x million,
the $y million, and the $z million are
treated as reasonable in amount for
purposes of sections 1397C(b)(2) and
1400Z–2(d)(3)(A)(ii). Second, because P
had no other gross income during the 31
months at issue, 100 percent of P’s gross
income during that time is treated as
derived from an active trade or business
in the qualified opportunity zone for
purposes of satisfying the 50-percent
test of section 1397C(b)(2). Third, for
purposes of satisfying the requirement
of section 1397C(b)(4), during the period
of land acquisition and building
construction a substantial portion of P’s
intangible property is treated as being
used in the active conduct of a trade or
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business in the qualified opportunity
zone. Fourth, all of the facts described
are consistent with QOF T’s interest in
P being a qualified opportunity zone
partnership interest for purposes of
satisfying the 90-percent investment
standard in section 1400Z–2(d)(1).
(3) Analysis if P had purchased an
existing building. The conclusions
would also apply if P’s plans had been
to buy and substantially improve a preexisting commercial building. In
addition, the fact that P’s basis in the
building has not yet doubled would not
cause the building to fail to satisfy
section 1400Z–2(d)(2)(D)(i)(III).
(D) Example 4. Multiple applications
of working capital safe harbor to
tangible property—(1) Facts. QOF A
forms a domestic C corporation B to
develop a large mixed-use real estate
development that will consist of
commercial and residential real
property, owning almost all of the
equity of B in exchange for cash. To
raise additional working capital for the
mixed-use real estate development, B
also will borrow cash under a new
revolving credit agreement with an
unrelated lender. B has a master written
plan for the completion of the
commercial and residential real
property over a 55-month period. The
plan provides that the commercial real
property will be completed over a 30
month schedule and subsequently, the
residential real property will be
completed over a 25 month schedule.
The plan further provides that a portion
of the commercial real property is
unable to be used in a trade or business
after the completion of the commercial
real property since that portion of the
commercial real property will be
unusable during the residential
construction phase. Pursuant to B’s
original master plan for the completion
of the real estate development, QOF A
acquires additional equity in B for cash
after the completion of the commercial
development phase, and B commences
use of those working capital assets for
residential development phase.
(2) Analysis. B’s use of the cash for
the commercial and residential phase
qualified for the working capital safe
harbor described in paragraph (d)(3)(v)
of this section. In addition, all of B’s
commercial real property developed
pursuant to B’s original master plan is
treated as qualified opportunity zone
business property under paragraph
(d)(3)(vi)(D) of this section.
*
*
*
*
*
(6) * * *
(i) For purposes of the 90-percent
qualified opportunity zone business
holding period requirements set forth in
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sections 1400Z–2(d)(2)(B)(i)(III), 1400Z–
2(d)(2)(C)(iii), and 1400Z–
2(d)(2)(D)(i)(III), if a trade or business
causes the QOF to fail the 90-percent
investment standard on a semiannual
testing date, the QOF may treat the stock
or partnership interest in that trade or
business as qualified opportunity zone
property for that semiannual testing
date provided the trade or business
corrects the failure within 6 months of
the date on which the stock or
partnership interest lost its
qualification.
*
*
*
*
*
(iii) Each QOF is permitted only one
correction for a trade or business
pursuant to this paragraph (d)(6). If the
entity, at the end of the additional sixmonth cure period, fails to qualify as a
qualified opportunity zone business,
then the QOF becomes subject to the
penalty under section 1400Z–2(f)(1) for
each month the entity failed to qualify
as a qualified opportunity zone business
beginning with the first month
following the last month that the QOF
met the 90-percent investment standard.
(e) * * *
(2) Prior periods. With respect to the
portion of a taxpayer’s first taxable year
ending after December 21, 2017, and for
taxable years beginning after December
21, 2017, and on or before March 13,
2020, a taxpayer may choose either—
(i) To apply the section 1400Z–2
regulations, if applied in a consistent
manner for all such taxable years
(reliance by a taxpayer on paragraph
(e)(2)(ii) of this section, § 1.1400Z2(a)–
1(g)(2)(ii), § 1.1400Z2(b)–1(j)(2)(ii),
§ 1.1400Z2(d)–2(e)(2)(ii), or
§ 1.1400Z2(f)–1(d)(2)(ii), is disregarded
solely for purposes of the consistency
requirement under this paragraph
(e)(2)(i)); or
*
*
*
*
*
■ Par. 7. Section 1.1400Z2(d)–2 is
amended by revising paragraphs (d)(4)(i)
and (ii), (e)(2) introductory text, and
(e)(2)(i) to read as follows:
§ 1.1400Z2(d)–2 Qualified opportunity zone
business property.
*
*
*
*
*
(d) * * *
(4) * * *
(i) Qualified tangible property.
Tangible property used in a trade or
business of an eligible entity satisfies
the substantially all requirement of
paragraph (d)(1) of this section if and
only if the tangible property is qualified
tangible property. Qualified tangible
property is tangible property that
satisfies the requirements of paragraph
(d)(4)(ii), (iii) (subject to the limitation
in paragraph (d)(4)(iv) of this section),
or (v) of this section.
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19085
(ii) 70-percent use test. Tangible
property held by a trade or business is
qualified tangible property to the extent,
based on the number of days between
two consecutive semiannual testing
dates, not less than 70 percent of the
total utilization of the tangible property
by the trade or business occurs at a
location within the geographic borders
of a qualified opportunity zone (that is,
the 70-percent use test).
*
*
*
*
*
(e) * * *
(2) Prior periods. With respect to the
portion of a taxpayer’s first taxable year
ending after December 21, 2017, and for
taxable years beginning after December
21, 2017, and on or before March 13,
2020, a taxpayer may choose either—
(i) To apply the section 1400Z–2
regulations, if applied in a consistent
manner for all such taxable years
(reliance by a taxpayer on paragraph
(e)(2)(ii) of this section, § 1.1400Z2(a)–
1(g)(2)(ii), § 1.1400Z2(b)–1(j)(2)(ii),
§ 1.1400Z2(d)–1(e)(2)(ii), or
§ 1.1400Z2(f)–1(d)(2)(ii), is disregarded
solely for purposes of the consistency
requirement under this paragraph
(e)(2)(i)); or
*
*
*
*
*
■ Par. 9. Section 1.1400Z2(f)–1 is
amended:
■ a. In paragraph (b)(2), by removing the
language ‘‘up to’’ and adding in its place
‘‘not more than’’;
■ b. By revising paragraph (c)(3)(iii);
■ c. In the first sentence of paragraph
(c)(3)(v)(B), by adding a comma after
‘‘hog and pig farming’’ and removing the
word ‘‘is’’ and adding in its place
‘‘comprise’’; and
■ d. By revising paragraphs (d)(2)
introductory text and (d)(2)(i).
The revisions read as follows:
§ 1.1400Z2(f)–1 Administrative rulespenalties, anti-abuse, etc.
*
*
*
*
*
(c) * * *
(3) * * *
(iii) Example 3—(A) Facts. Entity C is
a QOF that meets the requirements of
section 1400Z–2(d)(1). Entity C owns
qualified opportunity zone stock in a
domestic corporation described in
section 1400Z–2(d)(2)(B) (Corporation
C), which operates a qualified
opportunity zone business. Entity C also
owns Corporation D stock, which is not
qualified opportunity zone stock, which
stock is less than 10% of the assets of
Entity C. Under section 1400Z–2(e)(2),
these stock holdings cause Entity C to be
related to both Corporation C and
Corporation D. On date 1, under section
1400Z–2(e)(2), Individual S is not a
related person with respect to Entity C,
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Corporation C, or Corporation D. On
that date, Individual S sells tangible
property to Corporation C (Asset 1) for
use in Corporation C’s qualified
opportunity zone business and sells a
second asset to Corporation D (Asset 2).
Both items sold were capital assets (as
defined in section 1221), and had an
adjusted basis of $0. As a result,
Individual S realizes gain of $100 from
the sale to Corporation C and $75 from
the sale to Corporation D. At the time of
the sale Individual S has a plan or intent
to invest $175 in Entity C and to make
deferral elections under section 1400Z–
2(a)(1) with respect to the gain from the
two sales. On date 2, for $175 Individual
S acquired an eligible interest in Entity
C, an acquisition that causes Individual
S to become a related person with
respect to Entity C within the meaning
of section 1400Z–2(e)(2). Analysis.
Under paragraph (c)(1) of this section,
Individual S’s $175 gain is not an
eligible gain and cannot be the subject
a deferral election under section 1400Z–
2(a)(1). The gain fails to satisfy
§ 1.1400Z2a–1(b)(11)(i)(C) because of
Individual S’s plan to acquire sufficient
equity in Entity C to become related to
Corporations C and D. Moreover, for the
same reason, the tangible property that
Corporation C purchased from
Individual S fails to satisfy the
requirement that a purchase of qualified
opportunity zone business property
must be from an unrelated person. See
sections 1400Z–2(d)(2)(D)(i)(I) and
179(d)(2)(A).
(B) Circular movement of
consideration. The facts are the same as
in paragraph (c)(3)(iii)(A) of this section
(this Example 3), except that Entity C
contributes the $100 and $75 (received
from Individual S) to Corporations C
and D, respectively, as part of a plan
that includes each transaction described
in paragraph (c)(3)(iii)(A) (collectively,
the transaction series). Under the step
transaction doctrine and circular cash
flow principles, this circular movement
of consideration is disregarded for
Federal income tax purposes, including
for purposes of section 1400Z–2 and the
section 1400Z–2 regulations. Therefore,
the transaction series is treated for
Federal income tax purposes as a
contribution by Individual S of Assets 1
and 2 to Entity C in exchange for an
eligible interest in Entity C, followed by
a contribution by Entity C of Assets 1
and 2 to Corporations C and D,
respectively. This result also would
obtain if Individual S were not related
to Entity C immediately following
Individual S’s acquisition of its eligible
interest from Entity C. See Rev. Rul. 83–
VerDate Sep<11>2014
16:25 Apr 03, 2020
Jkt 250001
142, 1983–2 C.B. 68; Rev. Rul. 78–397,
1978–2 C.B. 150.
*
*
*
*
*
(d) * * *
(2) Prior periods. With respect to the
portion of a taxpayer’s first taxable year
ending after December 21, 2017, that
began on March 13, 2020, a taxpayer
may choose either—
(i) To apply the section 1400Z–2
regulations, if applied in a consistent
manner for all such taxable years
(reliance by a taxpayer on paragraph
(d)(2)(ii) of this section, § 1.1400Z2(a)–
1(g)(2)(ii), § 1.1400Z2(b)–1(j)(2)(ii),
§ 1.1400Z2(d)–1(e)(2)(ii), or
§ 1.1400Z2(d)–2(e)(2)(ii), is disregarded
for purposes of the consistency
requirement under this paragraph
(d)(2)(i)); or
*
*
*
*
*
■ Par. 10. Section 1.1502–14Z is
amended:
■ a. In paragraph (b)(1)(iv)(A), by
removing the language ‘‘the QOF SAG’’
and adding in its place ‘‘a QOF SAG’’;
■ b. In the first sentence of paragraph
(b)(1)(iv)(B), by removing the language
‘‘the QOF SAG’’ and adding in its place
‘‘a QOF SAG’’ and removing the
language ‘‘such QOF SAG’’ and adding
in its place ‘‘a single QOF SAG’’;
■ c. In paragraph (b)(1)(iv)(C), by
removing the language ‘‘the QOF SAG’’
and adding in its place ‘‘a QOF SAG’’
and removing the language ‘‘such QOF
SAG’’ and adding in its place ‘‘that QOF
SAG’’;
■ d. In the first sentence of paragraph
(b)(1)(v), by removing the language ‘‘;
instead, the rules in this paragraph
(b)(1)(v) apply’’ and adding in its place
‘‘. Instead, those investment standard
rules apply’’;
■ e. In the first sentence of paragraph
(c)(2)(i), by removing the language ‘‘the
investment’’ and adding in its place ‘‘an
investment’’;
■ f. In the fourth sentence of paragraph
(c)(3) introductory text, by removing the
language ‘‘§ 1.1400Z2(b)–1(b)’’ and
adding in its place ‘‘§ 1.1400Z2(a)–
1(a)(1)’’;
■ g. By revising the first sentence of
paragraph (f)(2)(i);
■ h. In the first sentence of paragraph
(f)(2)(ii)(A), by removing the language
‘‘certain pre-existing QOF subs as QOF
partnerships’’ and adding in its place ‘‘a
pre-existing QOF sub as a QOF
partnership’’;
■ i. In the first sentence of paragraph
(f)(2)(ii)(D)(3)(i), by removing the
language ‘‘same as paragraph’’ and
adding in its place ‘‘same as in
paragraph’’;
■ j. In paragraph (f)(2)(iii)(A), by
removing the language ‘‘the pre-
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Fmt 4700
Sfmt 4700
existing’’ and adding in its place ‘‘a preexisting’’;
■ k. In the last sentence of paragraph
(g)(3)(ii), by removing the language
‘‘includable amount’’ and adding in its
place ‘‘amount includable’’;
■ l. In the last sentence of paragraph
(h)(3)(iii)(A), by removing the closing
bracket at the end;
■ m. In the last sentence of paragraph
(j)(1)(i), by removing the language ‘‘that
results in’’ and adding in its place ‘‘that
result in’’;
■ n. In the fourth sentence of paragraph
(j)(3)(ii)(A), by removing the language
‘‘taken into under’’ and adding in its
place ‘‘taken into account under’’; and
■ o. By revising paragraph (k)(2)
introductory text.
The revisions read as follows:
§ 1.1502–14Z Application of opportunity
zone rules to members of a consolidated
group.
*
*
*
*
*
(f) * * *
(2) * * *
(i) * * * For each pre-existing QOF
sub of a consolidated group, the
consolidated group may make one of the
alternative, irrevocable elections
provided in paragraphs (f)(2)(ii) through
(iv) of this section. * * *
*
*
*
*
*
(k) * * *
(2) Prior periods. With respect to the
portion of a consolidated group’s first
taxable year ending after December 21,
2017, and for taxable years beginning
after December 21, 2017, and on or
before March 13, 2020, a consolidated
group may choose either—
*
*
*
*
*
■ Par. 11. Section 1.1504–3 is amended:
■ a. In the paragraph (b) subject
heading, by removing ‘‘affiliation’’ and
adding in its place ‘‘consolidation’’;
■ b. In the first sentence of paragraph
(b)(1), by removing ‘‘the issuer’’ and
adding in its place ‘‘any corporation’’;
■ c. In the last sentence of paragraph
(d)(1)(ii), by removing ‘‘–1.1502–100’’
and adding in its place ‘‘1.1502–100’’;
and
■ d. By revising paragraph (e)(2)
introductory text.
The revision reads as follows:
§ 1.1504–3 Treatment of stock in a QOF C
corporation for purposes of consolidation.
*
*
*
*
*
(e) * * *
(2) Prior periods. With respect to the
portion of a consolidated group’s first
taxable year ending after December 21,
2017, and for taxable years beginning
after December 21, 2017, and on or
E:\FR\FM\06APR1.SGM
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Federal Register / Vol. 85, No. 66 / Monday, April 6, 2020 / Rules and Regulations
before March 13, 2020, a consolidated
group may choose either—
*
*
*
*
*
Martin V. Franks,
Chief, Publications and Regulations Branch,
Legal Processing Division, Associate Chief
Counsel (Procedure and Administration).
[FR Doc. 2020–07013 Filed 4–1–20; 4:15 pm]
BILLING CODE 4830–01–P
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 165
[Docket No. USCG–2020–0036]
Safety Zones; Annual Events in the
Captain of the Port Buffalo Zone
directions of the Captain of the Port
Buffalo or her designated representative.
While within a safety zone, all vessels
shall operate at the minimum speed
necessary to maintain a safe course.
This notice of enforcement is issued
under authority of 33 CFR 165.939 and
5 U.S.C. 552 (a). In addition to this
notice of enforcement in the Federal
Register, the Coast Guard will provide
the maritime community with advance
notification of this enforcement period
via Broadcast Notice to Mariners or
Local Notice to Mariners. If the Captain
of the Port Buffalo determines that the
safety zone need not be enforced for the
full duration stated in this notice she
may use a Broadcast Notice to Mariners
to grant general permission to enter the
respective safety zone.
AGENCY:
Lexia M. Littlejohn,
Captain, U.S. Coast Guard, Captain of the
Port Buffalo.
ACTION:
[FR Doc. 2020–07048 Filed 4–3–20; 8:45 am]
Coast Guard, DHS.
Notice of enforcement of
regulation.
BILLING CODE 9110–04–P
The Coast Guard will enforce
a safety zone located in federal
regulations for a recurring marine event.
This action is necessary and intended
for the safety of life and property on
navigable waters during this event.
During the enforcement period, no
person or vessel may enter the
respective safety zone without the
permission of the Captain of the Port
Buffalo.
SUMMARY:
The regulations in 33 CFR
165.939 listed in entry (b)(12) in Table
165.939 will be enforced from 6:45 a.m.
through 10:45 a.m. on July 18, 2020.
FOR FURTHER INFORMATION CONTACT: If
you have questions about this notice of
enforcement, call or email LT William
Fitzgerald, Chief of Waterways
Management, U.S. Coast Guard Marine
Safety Unit Cleveland; telephone 216–
937–0124, email william.j.fitzgerald@
uscg.mil.
DATES:
The Coast
Guard will enforce the section entitled
Safety Zones; Annual Events in the
Captain of the Port Buffalo Zone listed
in in table 165.939 entry (b)(12) in 33
CFR 165.939 for the Lake Erie Open
Water Swim. Pursuant to 33 CFR
165.23, entry into, transiting, or
anchoring within the safety zone during
an enforcement period is prohibited
unless authorized by the Captain of the
Port Buffalo or her designated
representative. Those seeking
permission to enter the safety zone may
request permission from the Captain of
Port Buffalo via channel 16, VHF–FM.
Vessels and persons granted permission
to enter the safety zone shall obey the
jbell on DSKJLSW7X2PROD with RULES
SUPPLEMENTARY INFORMATION:
VerDate Sep<11>2014
16:25 Apr 03, 2020
Jkt 250001
ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Part 52
[EPA–R01–OAR–2020–0150; FRL–10007–
40–Region 1]
Air Plan Approval; New Hampshire;
Negative Declaration for the Oil and
Gas Industry
Environmental Protection
Agency (EPA).
ACTION: Direct final rule.
AGENCY:
The Environmental Protection
Agency (EPA) is approving a State
Implementation Plan (SIP) revision
submitted by the State of New
Hampshire. The revision provides the
state’s determination, via a negative
declaration, that there are no facilities
within its borders subject to EPA’s 2016
Control Technique Guideline (CTG) for
the oil and gas industry. The intended
effect of this action is to approve this
item into the New Hampshire SIP. This
action is being taken in accordance with
the Clean Air Act (CAA).
DATES: This direct final rule will be
effective June 5, 2020, unless EPA
receives adverse comments by May 6,
2020. If adverse comments are received,
EPA will publish a timely withdrawal of
the direct final rule in the Federal
Register informing the public that the
rule will not take effect.
ADDRESSES: Submit your comments,
identified by Docket ID No. EPA–R01–
OAR–2020–0150 at https://
www.regulations.gov, or via email to
SUMMARY:
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19087
mcconnell.robert@epa.gov. For
comments submitted at Regulations.gov,
follow the online instructions for
submitting comments. Once submitted,
comments cannot be edited or removed
from Regulations.gov. For either manner
of submission, the EPA may publish any
comment received to its public docket.
Do not submit electronically any
information you consider to be
Confidential Business Information (CBI)
or other information whose disclosure is
restricted by statute. Multimedia
submissions (audio, video, etc.) must be
accompanied by a written comment.
The written comment is considered the
official comment and should include
discussion of all points you wish to
make. The EPA will generally not
consider comments or comment
contents located outside of the primary
submission (i.e. on the web, cloud, or
other file sharing system). For
additional submission methods, please
contact the person identified in the FOR
FURTHER INFORMATION CONTACT section.
For the full EPA public comment policy,
information about CBI or multimedia
submissions, and general guidance on
making effective comments, please visit
https://www.epa.gov/dockets/
commenting-epa-dockets. Publicly
available docket materials are available
at https://www.regulations.gov or at the
U.S. Environmental Protection Agency,
EPA Region 1 Regional Office, Air and
Radiation Division, 5 Post Office
Square—Suite 100, Boston, MA. EPA
requests that if at all possible, you
contact the contact listed in the FOR
FURTHER INFORMATION CONTACT section to
schedule your inspection. The Regional
Office’s official hours of business are
Monday through Friday, 8:30 a.m. to
4:30 p.m., excluding legal holidays.
FOR FURTHER INFORMATION CONTACT: Bob
McConnell, Environmental Engineer,
Air and Radiation Division (Mail Code
05–2), U.S. Environmental Protection
Agency, Region 1, 5 Post Office Square,
Suite 100, Boston, Massachusetts,
02109–3912; (617) 918–1046.
mcconnell.robert@epa.gov.
SUPPLEMENTARY INFORMATION:
Throughout this document whenever
‘‘we,’’ ‘‘us,’’ or ‘‘our’’ is used, we mean
EPA.
Table of Contents
I. Background
II. Summary of SIP Revision and EPA
Analysis
III. Final Action
IV. Statutory and Executive Order Reviews
I. Background
On October 27, 2016, EPA published
in the Federal Register the ‘‘Final
Control Techniques Guidelines for the
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]]>Agencies
[Federal Register Volume 85, Number 66 (Monday, April 6, 2020)]
[Rules and Regulations]
[Pages 19082-19087]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07013]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9889]
RIN 1545-BO4
Investing in Qualified Opportunity Funds; Correcting Amendments
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Correcting amendments.
-----------------------------------------------------------------------
SUMMARY: This document contains corrections to Treasury Decision 9889,
which was published in the Federal Register on Monday, January 13,
2020. Treasury Decision 9889 contained final regulations under the
Internal Revenue Code (the ``Code) that govern the extent to which
taxpayers may elect the Federal income tax benefits with respect to
certain equity interests in a qualified opportunity fund (QOF).
DATES: These corrections are effective on April 1, 2020, and applicable
as of January 13, 2020.
FOR FURTHER INFORMATION CONTACT: Concerning section 1400Z-2 and these
regulations generally, Alfred H. Bae, (202) 317-7006, or Kyle C.
Griffin, (202) 317-4718, of the Office of Associate Chief Counsel
(Income Tax and Accounting); concerning issues related to C
corporations and consolidated groups, Jeremy Aron-Dine, (202) 317-6848,
or Sarah Hoyt, (202) 317-5024, of the Office of Associate Chief Counsel
(Corporate); concerning issues related to gains from financial
contracts, REITs, or RICs, Andrea Hoffenson or Pamela Lew, (202) 317-
7053, of the Office of Associate Chief Counsel (Financial Institutions
and Products); concerning issues related to investments by foreign
persons, Eric Florenz, (202) 317-6941, or Milton Cahn (202) 317-6937,
of the Office of Associate Chief Counsel (International); concerning
issues related to partnerships, S corporations or trusts, Marla
Borkson, Sonia Kothari, or Vishal Amin, at (202) 317-6850, and
concerning issues related to estates and gifts, Leslie Finlow or
Lorraine Gardner, at (202) 317-6859, of the Office of Associate Chief
Counsel (Passthroughs and Special Industries). These numbers are not
toll-free numbers.
SUPPLEMENTARY INFORMATION:
Background
The final regulations (TD 9889) that are the subject of this
correction are under section 1400Z-2 of the Code.
Need for Correction
As published on January 13, 2020 (85 FR 1866) contained errors that
may prove to be misleading and need to be corrected.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Correction of Publication
Accordingly, 26 CFR part 1 is corrected by making the following
correcting amendments:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section1.1400Z2-0 is amended:
0
a. By revising the entry for Sec. 1.1400Z2(a)-1(d)(2);
0
b. In the entry for Sec. 1.1400Z2(b)-1(h) introductory text, by
removing the language ``S corporations''; and
0
c. By revising the entry for Sec. 1.1400Z2(d)-1(a)(4).
The revisions read as follows:
Sec. 1.1400Z2-0 Table of Contents.
* * * * *
Sec. 1.1400Z2(a)-1 Deferring tax on capital gains by investing in
opportunity zones.
* * * * *
(d) * * *
(2) Annual reporting of qualifying investments.
* * * * *
Sec. 1.1400Z2(d)-1 Qualified opportunity funds and qualified
opportunity zone businesses.
(a) * * *
(4) [Reserved]
* * * * *
[[Page 19083]]
0
Par. 3. Section 1.1400Z2(a)-1 is amended:
0
a. In paragraph (b)(3) by adding the language ``described in Sec.
1.1400Z2(d)-2(d)(4)(ii) that is'' after the words ``means the test'';
0
b. In the last sentence of paragraph (b)(11)(ix)(A)(2), by removing the
language ``publications'' and adding in its place ``instructions'';
0
c. In paragraph (b)(32), by removing the word ``business'';
0
d. In the last sentence of paragraph (c)(1)(iii)(A), by removing the
word ``only'' before ``apply''; and
0
e. By revising paragraphs (d)(2), (g)(2) introductory text, and
(g)(2)(i).
The revisions read as follows:
Sec. 1.1400Z2(a)-1 Deferring tax on capital gains by investing in
opportunity zones.
* * * * *
(d) * * *
(2) Annual reporting of qualifying investments. An eligible
taxpayer must report any qualifying investment held at any point during
the taxable year in accordance with guidance published in the Internal
Revenue Bulletin or in forms and instructions (see Sec. Sec.
601.601(d)(2) and 601.602 of this chapter). A failure to make this
report for any given taxable year will result in a rebuttable
presumption that the taxpayer has had an inclusion event described in
Sec. 1.1400Z2(b)-1(c) during that year. The presumption described in
the previous sentence may be rebutted by the taxpayer making the report
described in the first sentence of this paragraph (d)(2) or by the
taxpayer establishing to the satisfaction of the Commissioner that an
inclusion event described in Sec. 1.1400Z2(b)-1(c) did not occur
during that taxable year.
* * * * *
(g) * * *
(2) Prior periods. With respect to eligible gains that would be
recognized (absent the making of a deferral election) during the
portion of a taxpayer's first taxable year ending after December 21,
2017, and during taxable years beginning after December 21, 2017, and
on or before March 13, 2020, a taxpayer may choose either--
(i) To apply the section 1400Z-2 regulations, if applied in a
consistent manner for all such taxable years (reliance by a taxpayer
under paragraph (g)(2)(ii) of this section, Sec. 1.1400Z2(b)-
1(j)(2)(ii), Sec. 1.1400Z2(d)-1(e)(2)(ii), Sec. 1.1400Z2(d)-
2(e)(2)(ii), or Sec. 1.1400Z2(f)-1(d)(2)(ii), is disregarded solely
for purposes of the consistency requirement under this paragraph
(g)(2)(i)); or
* * * * *
0
Par. 4. Section 1.1400Z2(b)-1 is amended:
0
a. In the last sentence of paragraph (c)(6)(ii)(B), by removing ``Sec.
1400Z2(c)-1(b)(1)(ii)'' and adding in its place ``Sec. 1.1400Z2(c)-
1(b)(1)(ii)''; and
0
b. By revising paragraphs (j)(2) introductory text and (j)(2)(i).
The revisions read as follows:
Sec. 1.1400Z2(b)-1 Inclusion of gains that have been deferred under
section 1400Z-2(a)
* * * * *
(j) * * *
(2) Prior periods. With respect to the portion of a taxpayer's
first taxable year ending after December 21, 2017, and for taxable
years beginning after December 21, 2017, and on or before March 13,
2020, a taxpayer may choose either--
To apply the section 1400Z-2 regulations, if applied in a
consistent manner for all such taxable years (reliance by a taxpayer on
paragraph (j)(2)(ii) of this section, Sec. 1.1400Z2(a)-1(g)(2)(ii),
Sec. 1.1400Z2(d)-1(e)(2)(ii), Sec. 1.1400Z2(d)-2(e)(2)(ii), or Sec.
1.1400Z2(f)-1(d)(2)(ii), is disregarded solely for purposes of the
consistency requirement under this paragraph (j)(2)(i)); or
* * * * *
Sec. 1.1400Z2(c)-1 [Amended]
0
Par. 5. Section 1.1400Z2(c)-1 is amended:
0
a. In the first sentence of paragraph (b)(2)(ii)(A), by removing the
language ``one of more partnerships'' and adding in its place ``one or
more partnerships''; and
0
b. In the third sentence of paragraph (b)(2)(ii)(B)(1), by removing
``Sec. 1400Z2(b)-1(c)(6)(iv)(B)'' and adding in its place ``Sec.
1.1400Z2(b)-1(c)(6)(iv)(B)''.
0
Par. 6. Section 1.1400Z2(d)-1 is amended:
0
a. In the first sentence of paragraph (b)(2)(i)(C)(2)(ii), by removing
the language ``not later than'' and adding in its place ``not earlier
than'';
0
b. By revising paragraph (b)(4)(ii);
0
c. In the first sentence of paragraph (c)(2)(i)(C)(2), by removing the
language ``is made by'' and adding in its place ``may be made by'';
0
d. In paragraph (d)(3)(v)(D), by removing the language ``receive up
to'' and adding in its place ``receive not more than'';
0
e. By removing paragraphs (d)(3)(v)(F) and (G);
0
f. By revising paragraphs (d)(3)(vi) and (vii);
0
g. By redesignating paragraphs (d)(3)(ix) and (x) as (d)(3)(viii) and
(ix), respectively; and
0
h. By revising paragraphs (d)(6)(i) and (iii), (e)(2) introductory
text, and (e)(2)(i).
The revisions read as follows:
Sec. 1.1400Z2(d)-1 Qualified opportunity funds and qualified
opportunity zone businesses.
* * * * *
(b) * * *
(4) * * *
(ii) Property owned by an eligible entity--(A) Property purchased
or constructed. The value of each property owned by an eligible entity
that is acquired by purchase for fair market value or constructed for
fair market value is the eligible entity's unadjusted cost basis of the
asset under section 1012 or section 1013. Solely for purposes of this
paragraph (b)(4)(ii)(A), the acquisition by a QOF of qualified
opportunity zone stock or a qualified opportunity zone partnership
interest is treated as a purchase of such interest by the QOF.
* * * * *
(d) * * *
(3) * * *
(vi) Safe harbor for section 1397C requirements other than ``sin
business'' prohibition--(A) Maximum 62-month safe harbor for start-up
businesses. Property described in paragraphs (d)(3)(vi)(B), (C), and
(D) of this section may benefit from one or more 31-month periods, for
a total of 62 months, in the form of multiple overlapping or a
sequential application of the working capital safe harbor if--
(1) Each application independently satisfies all of the
requirements in paragraphs (d)(3)(v)(A) through (C) of this section;
(2) The working capital assets from an expiring 31-month period
were expended in accordance with the requirements in paragraphs
(d)(3)(v)(A) through (C) of this section;
(3) The subsequent infusions of working capital assets form an
integral part of the plan covered by the initial working capital safe
harbor period; and
(4) Each overlapping or sequential application of the working
capital safe harbor includes a substantial amount of working capital
assets (which may include debt instruments described in section
1221(a)(4)).
(B) Safe harbor for gross income derived from the active conduct of
business. Solely for purposes of applying the 50-percent test in
section 1397C(b)(2) to the definition of a qualified opportunity zone
business in section 1400Z-2(d)(3), if any gross income is derived from
property that paragraph (d)(3)(v) of this section treats as a
reasonable amount of working
[[Page 19084]]
capital, then that gross income is counted toward satisfaction of the
50-percent test.
(C) Safe harbor for use of intangible property. Solely for purposes
of applying the use requirement in section 1397C(b)(4) to the
definition of a qualified opportunity zone business under section
1400Z-2(d)(3), intangible property purchased or licensed by the trade
or business, pursuant to the reasonable written plan with a written
schedule for the expenditure of the working capital, satisfies the use
requirement during any period in which the business is proceeding in a
manner that is substantially consistent with paragraphs (d)(3)(v)(A)
through (C) of this section.
(D) Safe harbor for working capital and property on which working
capital is being expended--(1) Working capital. If paragraph (d)(3)(v)
of this section treats property of an entity that would otherwise be
nonqualified financial property as being a reasonable amount of working
capital because of compliance with the three requirements of paragraphs
(d)(3)(v)(A) through (C) of this section, the entity satisfies the
requirements of section 1400Z-2(d)(2)(D)(i) only during the working
capital safe harbor period(s) for which the requirements of paragraphs
(d)(3)(v)(A) through (C) of this section are satisfied; however such
property is not qualified opportunity zone business property for any
purpose.
(2) Tangible property acquired with covered working capital. If
tangible property referred to in paragraph (d)(3)(v)(A) of this section
is expected to satisfy the requirements of section 1400Z-2(d)(2)(D)(i)
as a result of the planned expenditure of working capital described in
paragraph (d)(3)(v)(A), and is purchased, leased, or improved by the
trade or business, pursuant to the written plan for the expenditure of
the working capital, then the tangible property is treated as qualified
opportunity zone business property satisfying the requirements of
section 1400Z-2(d)(2)(D)(i), during that and subsequent working capital
periods the property is subject to, for purposes of the 70-percent
tangible property standard in section 1400Z-2(d)(3).
(vii) Examples. The following examples illustrate the rules of
paragraphs (d)(3)(v) and (vi) of this section.
(A) Example 1. General application of working capital safe harbor--
(1) Facts. QOF F creates a domestic C corporation E to open a fast-food
restaurant and acquires almost all of the equity of E in exchange for
cash. E has a written plan and a 20-month schedule for the use of this
cash to establish the restaurant. Among the planned uses for the cash
are identification of favorable locations in the qualified opportunity
zone, leasing a building suitable for such a restaurant, outfitting the
building with appropriate equipment and furniture (both owned and
leased), necessary security deposits, obtaining a franchise and local
permits, and the hiring and training of kitchen and wait staff. Not-
yet-disbursed amounts were held in assets described in section
1397C(e)(1), and these assets were eventually expended in a manner
consistent with the plan and schedule.
(2) Analysis. E's use of the cash qualifies for the working capital
safe harbor described in paragraph (d)(3)(v) of this section.
(B) Example 2. Multiple applications of working capital safe
harbor--(1) Facts. QOF G creates a domestic C corporation H to start a
new technology company and acquires equity of H in exchange for cash on
Date 1. In addition to H's rapid deployment of capital received from
other equity investors, H writes a plan with a 30-month schedule for
the use of the Date 1 cash. The plan describes use of the cash to
research and develop a new technology (Technology), including paying
salaries for engineers and other scientists to conduct the research,
purchasing, and leasing equipment to be used in research and furnishing
office and laboratory space. Approximately 18 months after Date 1, on
Date 2, G acquires additional equity in H for cash, and H writes a
second plan. This new plan has a 25-month schedule for the development
of a new application of existing software (Application), to be marketed
to government agencies. Among the planned uses for the cash received on
Date 2 are paying development costs, including salaries for software
engineers, other employees, and third-party consultants to assist in
developing and marketing the new application to the anticipated
customers. Not-yet-disbursed amounts that were scheduled for
development of the Technology and the Application were held in assets
described in section 1397C(e)(1), and these assets were eventually
expended in a manner substantially consistent with the plans and
schedules for both the Technology and the Application.
(2) Analysis. H's use of both the cash received on Date 1 and the
cash received on Date 2 qualifies for the working capital safe harbor
described in paragraph (d)(3)(v) of this section.
(C) Example 3. General application of working capital safe harbor--
(1) Facts. In 2019, Taxpayer H realized $w million of capital gains and
within the 180-day period invested $w million in QOF T, a qualified
opportunity fund. QOF T immediately acquired from partnership P a
partnership interest in P, solely in exchange for $w million of cash. P
immediately placed the $w million in working capital assets, which
remained in working capital assets until used. P had written plans to
acquire land in a qualified opportunity zone on which it planned to
construct a commercial building. Of the $w million, $x million was
dedicated to the land purchase, $y million to the construction of the
building, and $z million to ancillary but necessary expenditures for
the project. The written plans provided for purchase of the land within
a month of receipt of the cash from QOF T and for the remaining $y and
$z million to be spent within the next 30 months on construction of the
building and on the ancillary expenditures. All expenditures were made
on schedule, consuming the $w million. During the taxable years that
overlap with the first 31-month period, P had no gross income other
than that derived from the amounts held in those working capital
assets. Prior to completion of the building, P's only assets were the
land it purchased, the unspent amounts in the working capital assets,
and P's work in process as the building was constructed.
(2) Analysis--P met the three requirements of the safe harbor
provided in paragraphs (d)(3)(v)(A) through (C) of this section. P had
a written plan to spend the $w received from QOF T for the acquisition,
construction, and/or substantial improvement of tangible property in a
qualified opportunity zone, as defined in section 1400Z-1(a). P had a
written schedule consistent with the ordinary start-up for a business
for the expenditure of the working capital assets. And, finally, P's
working capital assets were actually used in a manner that was
substantially consistent with its written plan and the ordinary start-
up of a business. First, the $x million, the $y million, and the $z
million are treated as reasonable in amount for purposes of sections
1397C(b)(2) and 1400Z-2(d)(3)(A)(ii). Second, because P had no other
gross income during the 31 months at issue, 100 percent of P's gross
income during that time is treated as derived from an active trade or
business in the qualified opportunity zone for purposes of satisfying
the 50-percent test of section 1397C(b)(2). Third, for purposes of
satisfying the requirement of section 1397C(b)(4), during the period of
land acquisition and building construction a substantial portion of P's
intangible property is treated as being used in the active conduct of a
trade or
[[Page 19085]]
business in the qualified opportunity zone. Fourth, all of the facts
described are consistent with QOF T's interest in P being a qualified
opportunity zone partnership interest for purposes of satisfying the
90-percent investment standard in section 1400Z-2(d)(1).
(3) Analysis if P had purchased an existing building. The
conclusions would also apply if P's plans had been to buy and
substantially improve a pre-existing commercial building. In addition,
the fact that P's basis in the building has not yet doubled would not
cause the building to fail to satisfy section 1400Z-2(d)(2)(D)(i)(III).
(D) Example 4. Multiple applications of working capital safe harbor
to tangible property--(1) Facts. QOF A forms a domestic C corporation B
to develop a large mixed-use real estate development that will consist
of commercial and residential real property, owning almost all of the
equity of B in exchange for cash. To raise additional working capital
for the mixed-use real estate development, B also will borrow cash
under a new revolving credit agreement with an unrelated lender. B has
a master written plan for the completion of the commercial and
residential real property over a 55-month period. The plan provides
that the commercial real property will be completed over a 30 month
schedule and subsequently, the residential real property will be
completed over a 25 month schedule. The plan further provides that a
portion of the commercial real property is unable to be used in a trade
or business after the completion of the commercial real property since
that portion of the commercial real property will be unusable during
the residential construction phase. Pursuant to B's original master
plan for the completion of the real estate development, QOF A acquires
additional equity in B for cash after the completion of the commercial
development phase, and B commences use of those working capital assets
for residential development phase.
(2) Analysis. B's use of the cash for the commercial and
residential phase qualified for the working capital safe harbor
described in paragraph (d)(3)(v) of this section. In addition, all of
B's commercial real property developed pursuant to B's original master
plan is treated as qualified opportunity zone business property under
paragraph (d)(3)(vi)(D) of this section.
* * * * *
(6) * * *
(i) For purposes of the 90-percent qualified opportunity zone
business holding period requirements set forth in sections 1400Z-
2(d)(2)(B)(i)(III), 1400Z-2(d)(2)(C)(iii), and 1400Z-
2(d)(2)(D)(i)(III), if a trade or business causes the QOF to fail the
90-percent investment standard on a semiannual testing date, the QOF
may treat the stock or partnership interest in that trade or business
as qualified opportunity zone property for that semiannual testing date
provided the trade or business corrects the failure within 6 months of
the date on which the stock or partnership interest lost its
qualification.
* * * * *
(iii) Each QOF is permitted only one correction for a trade or
business pursuant to this paragraph (d)(6). If the entity, at the end
of the additional six-month cure period, fails to qualify as a
qualified opportunity zone business, then the QOF becomes subject to
the penalty under section 1400Z-2(f)(1) for each month the entity
failed to qualify as a qualified opportunity zone business beginning
with the first month following the last month that the QOF met the 90-
percent investment standard.
(e) * * *
(2) Prior periods. With respect to the portion of a taxpayer's
first taxable year ending after December 21, 2017, and for taxable
years beginning after December 21, 2017, and on or before March 13,
2020, a taxpayer may choose either--
(i) To apply the section 1400Z-2 regulations, if applied in a
consistent manner for all such taxable years (reliance by a taxpayer on
paragraph (e)(2)(ii) of this section, Sec. 1.1400Z2(a)-1(g)(2)(ii),
Sec. 1.1400Z2(b)-1(j)(2)(ii), Sec. 1.1400Z2(d)-2(e)(2)(ii), or Sec.
1.1400Z2(f)-1(d)(2)(ii), is disregarded solely for purposes of the
consistency requirement under this paragraph (e)(2)(i)); or
* * * * *
0
Par. 7. Section 1.1400Z2(d)-2 is amended by revising paragraphs
(d)(4)(i) and (ii), (e)(2) introductory text, and (e)(2)(i) to read as
follows:
Sec. 1.1400Z2(d)-2 Qualified opportunity zone business property.
* * * * *
(d) * * *
(4) * * *
(i) Qualified tangible property. Tangible property used in a trade
or business of an eligible entity satisfies the substantially all
requirement of paragraph (d)(1) of this section if and only if the
tangible property is qualified tangible property. Qualified tangible
property is tangible property that satisfies the requirements of
paragraph (d)(4)(ii), (iii) (subject to the limitation in paragraph
(d)(4)(iv) of this section), or (v) of this section.
(ii) 70-percent use test. Tangible property held by a trade or
business is qualified tangible property to the extent, based on the
number of days between two consecutive semiannual testing dates, not
less than 70 percent of the total utilization of the tangible property
by the trade or business occurs at a location within the geographic
borders of a qualified opportunity zone (that is, the 70-percent use
test).
* * * * *
(e) * * *
(2) Prior periods. With respect to the portion of a taxpayer's
first taxable year ending after December 21, 2017, and for taxable
years beginning after December 21, 2017, and on or before March 13,
2020, a taxpayer may choose either--
(i) To apply the section 1400Z-2 regulations, if applied in a
consistent manner for all such taxable years (reliance by a taxpayer on
paragraph (e)(2)(ii) of this section, Sec. 1.1400Z2(a)-1(g)(2)(ii),
Sec. 1.1400Z2(b)-1(j)(2)(ii), Sec. 1.1400Z2(d)-1(e)(2)(ii), or Sec.
1.1400Z2(f)-1(d)(2)(ii), is disregarded solely for purposes of the
consistency requirement under this paragraph (e)(2)(i)); or
* * * * *
0
Par. 9. Section 1.1400Z2(f)-1 is amended:
0
a. In paragraph (b)(2), by removing the language ``up to'' and adding
in its place ``not more than'';
0
b. By revising paragraph (c)(3)(iii);
0
c. In the first sentence of paragraph (c)(3)(v)(B), by adding a comma
after ``hog and pig farming'' and removing the word ``is'' and adding
in its place ``comprise''; and
0
d. By revising paragraphs (d)(2) introductory text and (d)(2)(i).
The revisions read as follows:
Sec. 1.1400Z2(f)-1 Administrative rules- penalties, anti-abuse, etc.
* * * * *
(c) * * *
(3) * * *
(iii) Example 3--(A) Facts. Entity C is a QOF that meets the
requirements of section 1400Z-2(d)(1). Entity C owns qualified
opportunity zone stock in a domestic corporation described in section
1400Z-2(d)(2)(B) (Corporation C), which operates a qualified
opportunity zone business. Entity C also owns Corporation D stock,
which is not qualified opportunity zone stock, which stock is less than
10% of the assets of Entity C. Under section 1400Z-2(e)(2), these stock
holdings cause Entity C to be related to both Corporation C and
Corporation D. On date 1, under section 1400Z-2(e)(2), Individual S is
not a related person with respect to Entity C,
[[Page 19086]]
Corporation C, or Corporation D. On that date, Individual S sells
tangible property to Corporation C (Asset 1) for use in Corporation C's
qualified opportunity zone business and sells a second asset to
Corporation D (Asset 2). Both items sold were capital assets (as
defined in section 1221), and had an adjusted basis of $0. As a result,
Individual S realizes gain of $100 from the sale to Corporation C and
$75 from the sale to Corporation D. At the time of the sale Individual
S has a plan or intent to invest $175 in Entity C and to make deferral
elections under section 1400Z-2(a)(1) with respect to the gain from the
two sales. On date 2, for $175 Individual S acquired an eligible
interest in Entity C, an acquisition that causes Individual S to become
a related person with respect to Entity C within the meaning of section
1400Z-2(e)(2). Analysis. Under paragraph (c)(1) of this section,
Individual S's $175 gain is not an eligible gain and cannot be the
subject a deferral election under section 1400Z-2(a)(1). The gain fails
to satisfy Sec. 1.1400Z2a-1(b)(11)(i)(C) because of Individual S's
plan to acquire sufficient equity in Entity C to become related to
Corporations C and D. Moreover, for the same reason, the tangible
property that Corporation C purchased from Individual S fails to
satisfy the requirement that a purchase of qualified opportunity zone
business property must be from an unrelated person. See sections 1400Z-
2(d)(2)(D)(i)(I) and 179(d)(2)(A).
(B) Circular movement of consideration. The facts are the same as
in paragraph (c)(3)(iii)(A) of this section (this Example 3), except
that Entity C contributes the $100 and $75 (received from Individual S)
to Corporations C and D, respectively, as part of a plan that includes
each transaction described in paragraph (c)(3)(iii)(A) (collectively,
the transaction series). Under the step transaction doctrine and
circular cash flow principles, this circular movement of consideration
is disregarded for Federal income tax purposes, including for purposes
of section 1400Z-2 and the section 1400Z-2 regulations. Therefore, the
transaction series is treated for Federal income tax purposes as a
contribution by Individual S of Assets 1 and 2 to Entity C in exchange
for an eligible interest in Entity C, followed by a contribution by
Entity C of Assets 1 and 2 to Corporations C and D, respectively. This
result also would obtain if Individual S were not related to Entity C
immediately following Individual S's acquisition of its eligible
interest from Entity C. See Rev. Rul. 83-142, 1983-2 C.B. 68; Rev. Rul.
78-397, 1978-2 C.B. 150.
* * * * *
(d) * * *
(2) Prior periods. With respect to the portion of a taxpayer's
first taxable year ending after December 21, 2017, that began on March
13, 2020, a taxpayer may choose either--
(i) To apply the section 1400Z-2 regulations, if applied in a
consistent manner for all such taxable years (reliance by a taxpayer on
paragraph (d)(2)(ii) of this section, Sec. 1.1400Z2(a)-1(g)(2)(ii),
Sec. 1.1400Z2(b)-1(j)(2)(ii), Sec. 1.1400Z2(d)-1(e)(2)(ii), or Sec.
1.1400Z2(d)-2(e)(2)(ii), is disregarded for purposes of the consistency
requirement under this paragraph (d)(2)(i)); or
* * * * *
0
Par. 10. Section 1.1502-14Z is amended:
0
a. In paragraph (b)(1)(iv)(A), by removing the language ``the QOF SAG''
and adding in its place ``a QOF SAG'';
0
b. In the first sentence of paragraph (b)(1)(iv)(B), by removing the
language ``the QOF SAG'' and adding in its place ``a QOF SAG'' and
removing the language ``such QOF SAG'' and adding in its place ``a
single QOF SAG'';
0
c. In paragraph (b)(1)(iv)(C), by removing the language ``the QOF SAG''
and adding in its place ``a QOF SAG'' and removing the language ``such
QOF SAG'' and adding in its place ``that QOF SAG'';
0
d. In the first sentence of paragraph (b)(1)(v), by removing the
language ``; instead, the rules in this paragraph (b)(1)(v) apply'' and
adding in its place ``. Instead, those investment standard rules
apply'';
0
e. In the first sentence of paragraph (c)(2)(i), by removing the
language ``the investment'' and adding in its place ``an investment'';
0
f. In the fourth sentence of paragraph (c)(3) introductory text, by
removing the language ``Sec. 1.1400Z2(b)-1(b)'' and adding in its
place ``Sec. 1.1400Z2(a)-1(a)(1)'';
0
g. By revising the first sentence of paragraph (f)(2)(i);
0
h. In the first sentence of paragraph (f)(2)(ii)(A), by removing the
language ``certain pre-existing QOF subs as QOF partnerships'' and
adding in its place ``a pre-existing QOF sub as a QOF partnership'';
0
i. In the first sentence of paragraph (f)(2)(ii)(D)(3)(i), by removing
the language ``same as paragraph'' and adding in its place ``same as in
paragraph'';
0
j. In paragraph (f)(2)(iii)(A), by removing the language ``the pre-
existing'' and adding in its place ``a pre-existing'';
0
k. In the last sentence of paragraph (g)(3)(ii), by removing the
language ``includable amount'' and adding in its place ``amount
includable'';
0
l. In the last sentence of paragraph (h)(3)(iii)(A), by removing the
closing bracket at the end;
0
m. In the last sentence of paragraph (j)(1)(i), by removing the
language ``that results in'' and adding in its place ``that result
in'';
0
n. In the fourth sentence of paragraph (j)(3)(ii)(A), by removing the
language ``taken into under'' and adding in its place ``taken into
account under''; and
0
o. By revising paragraph (k)(2) introductory text.
The revisions read as follows:
Sec. 1.1502-14Z Application of opportunity zone rules to members of a
consolidated group.
* * * * *
(f) * * *
(2) * * *
(i) * * * For each pre-existing QOF sub of a consolidated group,
the consolidated group may make one of the alternative, irrevocable
elections provided in paragraphs (f)(2)(ii) through (iv) of this
section. * * *
* * * * *
(k) * * *
(2) Prior periods. With respect to the portion of a consolidated
group's first taxable year ending after December 21, 2017, and for
taxable years beginning after December 21, 2017, and on or before March
13, 2020, a consolidated group may choose either--
* * * * *
0
Par. 11. Section 1.1504-3 is amended:
0
a. In the paragraph (b) subject heading, by removing ``affiliation''
and adding in its place ``consolidation'';
0
b. In the first sentence of paragraph (b)(1), by removing ``the
issuer'' and adding in its place ``any corporation'';
0
c. In the last sentence of paragraph (d)(1)(ii), by removing ``-1.1502-
100'' and adding in its place ``1.1502-100''; and
0
d. By revising paragraph (e)(2) introductory text.
The revision reads as follows:
Sec. 1.1504-3 Treatment of stock in a QOF C corporation for purposes
of consolidation.
* * * * *
(e) * * *
(2) Prior periods. With respect to the portion of a consolidated
group's first taxable year ending after December 21, 2017, and for
taxable years beginning after December 21, 2017, and on or
[[Page 19087]]
before March 13, 2020, a consolidated group may choose either--
* * * * *
Martin V. Franks,
Chief, Publications and Regulations Branch, Legal Processing Division,
Associate Chief Counsel (Procedure and Administration).
[FR Doc. 2020-07013 Filed 4-1-20; 4:15 pm]
BILLING CODE 4830-01-P
