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IRS Letter 6501 – Qualified Opportunity Funds

At the beginning of April, the IRS announced that they will be sending a letter to people who need to take action related to Qualified Opportunity Funds (QOFs). If a taxpayer decided to attach Form 8996 QOF to their tax return, they may be expecting Letter 6501 to arrive in the mail shortly.

Overview

Letter 6501 explains to the taxpayer that additional information is needed to support the annual certification of investment standards. The letter should also address any invalid certifications and reveal if the calculation isn’t supported by the amounts reported. If the receiver of this letter intends to keep their certification as a Qualified Opportunity Fund, they most likely will have to take additional action to meet these requirements.

How to Take Action

It is very important that taxpayers who receive this letter correct the annual maintenance certification of investment standard. This can be done by filing an amended return or asking for an administrative adjustment request (AAR). If any entity that receives this letter fails to act, the IRS has the right to refer those tax accounts for further examination, which would severely increase the risk of an audit. Furthermore, investors who made the election to defer the tax on eligible gains invested in that entity will also have their chance of an audit increased greatly. Interest and other penalties can occur if these gains are not properly deferred.

Additional Letters

Taxpayers may also receive Letter 6502, Reporting Qualified Opportunity Fund (QOF), and Letter 6503, Annual Reporting of Qualified Opportunity Fund (QOF) Investments. These letters will notify taxpayers that investment information was missing or certain forms were not correctly filled out.

Wrap Up

If you received any of these letters, reach out to your accountant or advisor to see what additional steps need to be taken. By doing this, you will ensure that you do not accrue any unnecessary penalties or become subject to further examination.

 
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