Opportunity Zones: Part 2–Structure of Qualified Opportunity Funds (Completed)

The 2017 TCJA added a new deferral mechanism for capital gains realized from any source. The taxpayer can realize a capital gain and then reinvest only the amount of the gain in a qualified opportunity fund (QOF) within 180 days of the realization event. This allows the gain to be deferred until 2026, when it is recognized without regard to whether the QOF interest is sold. If the interest is held for at least 5 years before 2026 a basis adjustment allows 10% of the deferred gain to be eliminated. If held for 7 years another 5% of the deferred gain goes away. This means it is possible that only 85% of the deferred gain is recognized in 2026. In addition, if the investment is held for 10 years any appreciation on the investment can be realized without paying any tax.

Professional tax advisers will need to understand this provision in two situations. First, they may have a client who wants to establish their own QOF and needs help with the structure. Second, they may have a client who wants to invest in a QOF and needs an advisor to analyze the structure of the investment to ensure the opportunity zone investment benefits will be realized.

In this two-hour CPE course, nationally recognized tax expert and instructor James Hamill, CPA, Ph.D., will explain the different types of QOF structures that professional advisers will either see or will want to recommend to their clients. Dr. Hamill will also discuss how to exit the investment in the most tax-efficient manner.

This is Part II of a two-part series in opportunity zone investments. This part will focus on the structure of a QOF and exit strategies for the investment. It will not address the basic qualification and computational issue for deferred gains– that will be addressed in Part I.

Who Should Attend
CPAs, EAs, tax preparers and other tax professionals with responsibility for assisting clients with tax-planning strategies.

Topics Covered

• Basic Structure and COVID-based 2020 exceptions
• QOF Asset Requirements
• Qualified Opportunity Zone Stock
• Qualified Opportunity Zone Partnership Interest
• Qualified Opportunity Zone Business Property
• Substantial(ly)
• Substantial
• Substantially All of QOZB Property is QOZP
• Working Capital and direct versus indirect investment structures
• Proceeds of Sale Prior to Reinvestment
• Measurement Issues
• Use and Holding Period
• There's a 50% Test Also
• Intangibles
• Prove You Qualify?
• Exit Strategies
• Investment Structures
• Boutique Fund Structure
• Why Multiple Entities?
• Investor Issues

Learning Objectives

• Identify the key issues in structure of a qualified investment
• Recognize how to explain how the provisions work to a client
• Identify how to asses a project to determine if it is structured properly
• Recognize how to help a client structure a project
• Determine how distributions impact the investor's tax situation
• Identify optimal structures for exiting the investment
• Recognize tax incentives provided
• Identify which form to use for an election to defer a gain into a qualify opportunity fund that invests in a qualified opportunity zone property is made
• Identify characteristics of qualified opportunity zone business property
• Recognize how to qualify as a trade or business in a qualified opportunity zone
• Identify characteristics of a boutique fund
• Identify characteristics of a multiple entity alternate structure
• Describe how many annual testing dates(s) a qualified opportunity fund has
• Identify how QOZB applies
• Differentiate the three safe harbors with respect to the 50% test
• Describe a big investment fund

Level
Intermediate

Instructional Method
Group: Internet-based

NASBA Field of Study
Taxes (2 hours)

Program Prerequisites
Basic understanding of opportunity zones.

Advance Preparation
None