To receive the tax benefits of the QOZ, an investor must reinvest the amount of capital gains from the sale or exchange of capital assets into a QOF within 180 days of the sale or exchange.

Under Notice 2021-10, if a taxpayer's 180-day period to invest gain into a QOF expires on or after April 1, 2020 and before March 31, 2021, the deadline is postponed until March 31, 2021. This relief is automatic; no action is required to receive this relief.

A QOF must hold at least 90% of its assets in QOZ property, determined by calculating the average of the percentage of QOZ property the QOF held on both:

(26 U.S.C. § 1400Z-2(d)(1).) Failure to meet this threshold results in a statutory penalty, but the IRS does not impose a penalty if the failure is due to reasonable cause.

Under Notice 2021-10, a QOF's failure to satisfy the 90% threshold is deemed due to reasonable cause and will be disregarded for any QOF whose last day of the first 6-month period of the taxable year or last day of the taxable year falls on any date from April 1, 2020 to June 30, 2021. This relief is automatic; no action is required to receive this relief.

Tangible property is treated as QOZ business property if the tangible property is used in the QOF's trade or business and satisfies three general requirements, including that either:

(26 U.S.C. § 1400Z-2(d)(2)(D)(i).) The substantial improvement requirement is met only if, during any 30-month period beginning after the date of acquisition of the post-2017 acquired tangible property, there are additions to basis with respect to such property that, in the aggregate, exceed the QOF’s adjusted basis of that property as of the beginning of that 30-month period (26 U.S.C. § 1400Z-2(d)(2)(D)(ii)).

Under Notice 2021-10, for purposes of the substantial improvement requirement, the IRS will disregard the period from April 1, 2020 through March 31, 2021 in determining any 30-month substantial improvement period.

One of the requirements to be a QOZ business is the requirement that less than 5% of the average of the aggregate unadjusted bases of the entity's property be attributable to nonqualified financial property. Reasonable amounts of working capital held in cash, cash equivalents, or debt instruments are not considered nonqualified financial property provided the statutory working capital safe harbor requirements are satisfied (26 U.S.C. § 1400Z-2(d)-1(d)(3)(iv)). One safe harbor requirement is that there is a written schedule consistent with the ordinary start-up of a trade or business for expending the working capital assets within 31 months of the business receiving the assets (26 U.S.C. § 1400Z-2(d)-1(d)(3)(v)(B)).

If the QOZ business is located in a federally-declared disaster area, it may receive up to an additional 24 months to expend the working capital (26 U.S.C. § 1400Z-2(d)-1(d)(3)(v)(D). Notice 2021-10 clarifies that this protection is applicable to all QOZ businesses holding working capital assets intended to be covered by the working capital safe harbor before June 30, 2021 if they otherwise meet all requirements to qualify for the working capital safe harbor.

If a QOF sells or disposes of some or all of its QOZ property or if a distribution of stock or partnership interests held by the QOF is treated as a return of capital in the QOF's hands, any proceeds reinvested in QOZ property by the last day of the 12-month period beginning on the date of the distribution, sale, or disposition are treated as QOZ property for purposes of the 90% investment standard (26 U.S.C. § 1400Z-2(f)-1(b)(1)).

If the QOF's plan to reinvest some or all of these proceeds in QOZ property is delayed due to a federally-declared disaster, the QOF may receive up to an additional 12 months to reinvest the proceeds if the QOF invests the proceeds in the manner originally intended before the disaster (26 U.S.C. § 1400Z-2(f)-1(b)(2)). Notice 2021-10 clarifies that this protection is applicable to any QOF if the QOF's 12-month reinvestment period includes June 30, 2020, the date of the major disaster declarations.