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Is there flexibility on the 31-month safe harbor rule?

If a commercial real estate developer is committed to doing a project in a Qualified Opportunity Zone and there are delays, like permit issues, beyond the 31-month safe harbor, what are the implications for tax purposes? Does the project still qualify? And, if so, for how long?

  • Blake Christian
    June 29, 2019

    Yes, the 2019 regulations make clear that provided the Qualified Opportunity Fund management completes the paperwork necessary to get various governmental approvals prior to the 31-month period, the IRS will generally extend the 31-month period safe harbor. The project should still qualify. The extended period will be dependent upon the specific taxpayer's facts.

  • Maria De Los Angeles Rivera
    June 29, 2019

    The second set of regs addresses this issue and states that in a situation like this one, the project will not be disqualified. But they do not expand on how and for how long.

  • Samuel Weiser
    June 29, 2019

    There are exceptions for unanticipated delays that may enable a project to extend beyond 31 months. However, the initial deployment plan must plan to deploy all the assets within 31 months and any extension, generally, needs to relate to governmental delays that were unanticipated. For example, if the plan anticipates re-zoning approval within six months but the respective zoning board delays the hearing or a decision beyond the six-month period, the project may be entitled to an extension of the 31-month period equal to the time beyond the six-month period originally anticipated. However, it is unlikely you can "game" the system by setting unrealistic timelines for governmental actions. If it normally takes six months to get rezoning approval, your plan can't anticipate two months to obtain rezoning approval so that the original 31 months can be extended to 35 months.

  • Erik Kodesch
    June 29, 2019

    Permitting delays or other delays related to waiting for government action generally extend the 31-month timeline. I believe the key will be to demonstrate diligence and good faith in attempting to adhere to the 31-month schedule.

  • Scott McIntosh
    June 29, 2019

    The Treasury addressed this issue head-on in the second tranche of proposed regulations: "Exceeding the 31-month period does not violate the safe harbor if the delay is attributable to waiting for government action, the application for which is completed during the 31-month period." The developer in your hypothetical could exclude delay attributable to "waiting for government action" and the project would still qualify, so long as the developer otherwise followed his working capital plan and deployed capital in Qualified Opportunity Zone property within the 31-month window (after deducting that time excluded as government delay). The regulations don't place a limit on how much time could be excluded for government delay.

  • Brett Siglin