2020 Year-End Tax Guide

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Qualified Opportunity Zone Relief Due to the impact that the COVID-19 pandemic has had on business transactions, the Service has provided significant relief for Qualified Opportunity Zone (QOZ) investments. current taxation, the amount of qualifying capital gains to be deferred must be invested in a Qualifying Opportunity Fund (QOF) within a 180-day investment period. Generally, this is measured as 180-days from the recognition event. However, for an owner of a pass-through entity that has capital gain allocation, the investment period begins on the last day of the entity’s tax year. Where the last day for investment would fall between April 1, 2020, and December 31, 2020, the IRS has extended the reinvestment date to December 31, 2020. This means that some 2019 gains may still be eligible for deferral. However, the investor must make a valid deferral election on Form 8949. X 90% Asset Test Failure: Generally, a QOF must satisfy a 90% investment standard test, based on the average of two semi-annual periods. Failure of the test can cause the fund to become subject to penalties. Additionally, a failure will not prevent the entity from qualifying as a QOF nor cause the taxpayer’s investment in the fund to become a non- qualifying investment. X Working Capital Safe Harbor Exception Extension: A QOZ business can retain cash under a working capital exception for a 31-month period. Under certain circumstances, this period is subject to an increase of up to 31 months. The Service extended these applicable periods by 24 months. X 30 Month Substantial Improvement Period: Property already situated in a QOZ can be treated as “original use” property if it substantially improved within a 30-month period. This generally requires making improvements which cost an amount equal to the basis of the property (excluding the cost of land). X Extension of the 180-Day Investment Period: To avoid

Affordable Care Act (ACA) Protective Claim and Related Taxes The U.S. Supreme Court has agreed to hear a case from Texas involving the constitutionality of the ACA after the elimination of the individual shared responsibility payment (individual mandate). In Texas v U.S., the U.S. Court of Appeals declared that the requirement for individuals to carry health insurance under ACA was unconstitutional, based largely on the penalty’s reduction to zero under the Tax Cuts and Jobs Act (TCJA), starting in 2019. On March 2, 2020, the United States Supreme Court accepted an appeal by 21 state attorneys general, led by California in California v Texas (formerly Texas v U.S.) and the cross-appeal by Texas. The Court has indicated that it will issue its decision either in the fall of 2020 or in 2021. If the law is found unconstitutional, this could cause a retroactive invalidation of the ACA-related taxes (3.8% Net Investment Income Tax, .9% Additional Medicare Tax, and the Individual Mandate penalty) paid in 2016 and later years. Since the prior U.S. Supreme Court found that the Individual Mandate penalty was essentially a tax and legitimate exercise of Congress’ power to tax, it is not clear that, even if parts of the law are determined to be unconstitutional, this would apply to actual taxes. However, given this potential, many taxpayers have filed protective claims with respect to the 2016 tax year (which would otherwise be closed when a decision is issued). IN CONCLUSION This discussion is just an introduction to the federal income tax issues that have surfaced thus far this year. Pending stimulus bills and election results, not to mention unforeseen events, could also have significant impact on year-end tax planning. Hopefully this article and the others contained in this guide will motivate you to consider how these developments affect you, your family, and your business in the near and long-term future.