Eagerly anticipated proposed regulations addressing the eligibility of operating businesses to qualify for Opportunity Zone benefits are in the final stages of review before release by the Department of the Treasury.
Although October 2018 guidance provided the clarity investors, fund sponsors, and developers on the real estate side needed to move forward, many operating businesses have been waiting until the next round of proposed regulations for similar certainty on their eligibility to take advantage of OZ benefits.
Tangible property acquired after December 31, 2017 by the QOF and that is new or substantially improved can be qualifying OZ business property. With the exception of a select few businesses like liquor stores and massage parlors, an OZ business potentially could be almost any type of active trade or business.
Although we will not know the answers to these questions until the proposed regulations are released, the Trump administration, Treasury officials, and congressional champions of the legislation all have signaled that the rules will be favorable to businesses, likely resulting in a rush of activity for fund formation, investment, and starting up or expanding enterprises in OZs. How quickly must a QOF reinvest sale proceeds into qualifying tangible property or a qualified OZ business to remain compliant with the QOF rules?
In the interim, we are assisting clients with assessing whether their business ideas might qualify for OZ benefits and structuring QOFs for businesses in anticipation of the release of Treasury’s proposed regulations.