There is no extension except for when a delay is caused due to government action, such as the permitting process or an EPA study.
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How can I get an extension to the 30-month period after the acquisition of a property to make improvements?
Is there any way to get an extension to this 30-month rule? What happens if don’t make the deadline? Is there a penalty?
Answers
If there is a delay due to government issues, that can extend the 30 months. Carefully document any government delay, including for zoning or permitting.
There's no mechanism in the proposed regulations to apply for an extension. Instead, the proposed regulations specify the 30-month period is tolled for any general circumstances outside the taxpayer's control, such as government delays in permit applications or any delays caused by a third-party lender. The government is unlikely to put forth any extensions for circumstances within a taxpayer's control. If the taxpayer holds working capital or non-QOZBP outside the respective safe harbors for those, the assets would be "bad assets" under the 90% test and risk statutory penalties or even decertification if the problem is not remedied soon enough.
The regulations provide the possibility of extension for the 31-month working capital safe harbor, but not for the 30-month period for substantial improvement. Non-compliance will disqualify the property as QOZBP and require the QOF to compute the related penalties if the noncompliance produce is not compliant with the 90% test for the QOF.
You can get an extension for delays in government approvals of project. Otherwise, the penalty is 5% a year for the shortfall in qualified tangible property. If the 90% test fails, the penalty under IRC section 6621(a) (2) is 3%, plus fed short term rate. Currently the rate is 5% a year. 90% of assets less qualified assets times the 6621 rate.
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