Form 1099-B Expands Reporting Requirements to Qualified Opportunity Funds

For 2019, many operators of qualified opportunity funds (QOFs) will have to report the disposition of an investor’s interest in a QOF on Form 1099-B, Proceeds from Broker and Exchange Transactions. The QOF itself will have to report any disposition that is not reported by a broker.

The draft version of Form 1099-B only required brokers and QOFs to file Form 1099-B for each person who received cash, stock, or other property in exchange for a QOF interest. The final version of Form 1099-B fills in missing details for QOF reporting.

QOFs Can Shelter Capital Gains

QOFs were created at the end of 2017. A QOF must be organized as a partnership or corporation. QOFs are intended to spur development in economically disadvantaged areas.

A taxpayer who invests capital gains in a QOF generally is not taxed on those gains until the QOF interest is sold or, if earlier, December 31, 2026. In addition, appreciation in a QOF investment is not taxed at all if the taxpayer owns the QOF interest for at least ten years.

Reporting by QOFs

In the past, only brokers and barter exchanges had to file a Form 1099-B. However, this responsibility now also falls on a QOF if the QOF interest is not sold through a broker–for example, if the QOF is not publicly traded.

However, reporting requirements are streamlined for a QOF. A QOF that is not a broker only needs to provide the following information on Form 1099-B:

  • the number of shares or units of stock, or the percentage of a partnership interest (line 1a);
  • the date the taxpayer invested in the QOF, if known (line 1b);
  • the date the taxpayer disposes of the QOF interest (line 1c);
  • the gross cash proceeds from all dispositions of the QOF investment, if known (line 1d);
  • check the QOF box on line 3

The information previously provided on line 3 in prior versions of Form 1099-B is now entered on line 12.

Additional QOF Reporting Rules

Each disposition of a QOF interest is reported on a separate Form 1099-B regardless of how many dispositions any one person makes in the calendar year. A disposition includes any disposition of the investment, even if it does not involve consideration. For instance, dispositions by gift or inheritance must be reported.

All dispositions of QOF investments are reported regardless of the identity of the person who disposed of it. For example, if the QOF investor is a corporation, Form 1099-B is still required.

A broker (including a QOF that is also a broker) reports the disposition of a QOF interest just like any other disposition of stock or a partnership interest. Thus, the broker must report the basis (cost) of QOF stock on line 1e.

Form 1099-B Due Dates

The due dates for filing Form 1099-B with the IRS and providing a copy to the investor are the same as for other types of transactions reported on Form 1099-B. Thus, paper versions of Form 1099-B for calendar year 2019 transactions must be filed with the IRS by February 28, 2020. The deadline is extended to March 31, 2020, for forms filed electronically. Form 1096, a transmittal statement, must accompany all paper submissions. Filers preparing 250 or more Form 1099s generally must file electronically.

The filer must also provide a copy of the Form 1099-B to the taxpayer by February 18, 2020.

QOF Investor Reporting on Form 8949

Investors who dispose of a QOF interest will use the information from Form 1099-B to report gain or loss on their own Form 8949, Sales and Other Dispositions of Capital Assets. The investor also files a Form 8949 in the tax year the investment in the QOF is made to report the amount of deferred gain.

For additional information on qualified opportunity funds and information reporting requirements, see the CCH Answer Connect Topic Pages entitled Qualified Opportunity Funds and Recognition of Capital Gain Invested in Qualified Opportunity Funds.

By Ray G. Suelzer, J.D., LL.M.

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All stories by: CCHTaxGroup