By Ryan Beethoven-Wilson, CPA, Partner
Prompt response needed from taxpayers that receive QOF investment letters
The 2017 Tax Cuts and Jobs Act established the Qualified Opportunity Zone Program in order to provide a tax incentive for private, long-term investment in economically distressed communities.
Investors in Qualified Opportunity Zone programs are generally able to take advantage of three main tax benefits:
- The opportunity to defer realized capital gains through 2026,
- Reduction of originally-realized capital gains, and
- Exclusion from income tax of appreciation of the Qualified Opportunity Zone Investment.
The Internal Revenue Service recently issued IR 2022-79 which stated that beginning in April, the IRS will begin sending letters to taxpayers who may need to provide the IRS with more information about their Qualified Opportunity Fund (QOF) investments.
IRS Sending Letter 6501
The IRS will be sending Letter 6501, QOF Investment Standard, to certain taxpayers who attached to their return Form 8996, Qualified Opportunity Fund.
Letter 6501 will ask these taxpayers to provide information needed to support the required annual certification of investment standard. Taxpayers that want to maintain their QOF status will need to respond to this letter promptly to meet the certification requirement.
Note. The IRS may refer for examination an entity that receives Letter 6501 and fails to respond. In addition, investors who elected to defer tax on eligible gains invested in that entity may also be subject to examination.
Additional Letters
The IRS may also send taxpayers either of the following letters:
- Letter 6502, Reporting Qualified Opportunity Fund (QOF) Investments, or
- Letter 6503, Annual Reporting of Qualified Opportunity Fund (QOF) Investments
These letters notify taxpayers that certain information required by Form 8997, Initial and Annual Statement of Qualified Opportunity (QOF) Investments,
- Is missing or invalid, or
- The taxpayer “may not have properly followed the requirements to maintain their qualifying investment in a QOF with the filing of the form.”
Taxpayers intending to maintain an investment as a QOF should file an amended return or an Administrative Adjustment Request (AAR) with a properly completed Form 8997 attached.
Taxpayers that fail to act after receiving a letter may not have a qualifying investment in a QOF.
Please contact your Keiter Opportunity Advisor to learn more about Qualified Opportunity Zone tax incentives and related reporting requirements. Contact us: Email | 804.747.0000
About the Author
Ryan Beethoven-Wilson, CPA, Partner
Ryan’s practice focuses on business tax planning and compliance, general business consulting, financial reporting, and individual tax for privately-held clients in the professional services, emerging business, manufacturing, construction, retail, and real estate industries among others. Ryan also helped launch Keiter’s Opportunity Zone team, monitoring developments and consulting with investors and entrepreneurs on Opportunity Zone tax incentives. Ryan is a leader on several of Keiter’s industry niche teams.
More Insights from Ryan Beethoven-WilsonThe information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.
