You'll need to carefully review the QOZB requirements. OZ capital is neither a federal subsidy nor supported by federal guarantees. The program is created in the Internal Revenue Code (IRC) and U.S. taxpayers are in effect “supporting” the program by accepting the delayed collection of federal tax liabilities on short- and long-term capital gains and the forgiveness of federal taxes on capital gains for QOF investments held by QOF investors for more than 10 years. The OZ investment program features a rigorous federal tax compliance program to attach the tax benefits to private investment capital, and intersect with the investment deals between QOFs and the businesses receiving OZ capital to ensure the achievement of positive economic development benefits. The OZ capital is sourced from the private capital markets, and yet the Internal Revenue Service has imposed some minimal requirements on the businesses that are positioning to access this long-term equity capital and to qualify as QOZBs. The minimal IRS requirements are summarized as follows: American businesses - domestic corporations or domestic partnerships; in the zone - headquarter location in OZ and “in situ” residency represented by real property ownership or market-rate leases employed in the QOZBs active trade or business after Dec. 31, 2017; prohibited business activities - not in the business of, or the provision of (including the provision of land for) any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facility used for gambling, or any store where the principal business is the sale of alcoholic beverages for consumption off premises; demonstrated commitment to conduct business within the OZ - with respect to initial qualification and all subsequent years that the business is capitalized with OZ capital, then: (a) more than 70% of the business’ tangible property will be Qualified Opportunity Zone Business Property as defined in IRC Section 1400Z-2, and this 70% requirement is satisfied more than 90% of the time period that the OZ capital is invested in the business; (b) at least 50% of the business’ total gross income is associated with, and derived from, the active conduct of such business that itself is physically situated in OZ; (c) at least 40% of the business’ intangible property is used in the active conduct of such business that itself is physically situated in an OZ; and (d) less than 5% of the average of the aggregate unadjusted basis of the property of such business is classified as nonqualified financial property.
