The IRS recently released a draft version of Form 8997 for the 2020 tax year. The purpose of the Form 8997 is to provide a centralized form for an investor in qualified opportunity funds to report their investments in and the capital gains deferred by investment in qualified opportunity funds. The Form 8997 consists of 4 parts:
1. QOF Investments held at the beginning of the year
2. Current year capital gains deferred through QOF investment
3. Current year gain recognized from QOF investments (through disposition or other inclusion event)
4. QOF Investment Holdings at the end of the year (Part I + Part II – Part III)
The draft Form 8997 includes a change from the previous form which is a designation of special gain codes (column (d) in all 4 parts) for IRC Section 1256 Gains, Form 4797 (IRC Section 1231) Gains, Gains from staddles or collectibles sales and those that are exempt by treaty. All these gains are gains that get treated as capital gains through the provisions of the Internal Revenue Code and the associated Regulations.