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How do I create an Opportunity Zone fund?

I am underwriting a deal in which I, along with a group of investors, will be buying a piece of land in an Opportunity Zone. How do I create a Qualified Opportunity Fund for tax purposes? Does it also need to be a legal entity, such as an LLC?

  • Maria De Los Angeles Rivera
    June 18, 2019

    A domestic entity taxed as a corporation or a partnership for federal tax purposes may certify itself as a QOF. It must meet the investment requirements for every testing period.

  • Donny Lucaj
    June 18, 2019

    For tax purposes a Qualified Opportunity Fund (QOF) can be a partnership or corporation. Once you create the entity, then you must self-certify by filing Form 8996. It does have to be a legal entity. Be careful when self-certifying because it will start your clock on when the QOF has to spend its investments received.

  • Forrest Milder
    June 17, 2019

    Even though the word "fund" is used, a Qualified Opportunity Fund (or QOF) is simply a partnership or corporation, or an LLC taxed as a partnership or corporation that elects to be a Qualified Opportunity Fund, and the complies with the applicable investment and timetable rules. The property must be acquired by the QOF, or (more likely) by a "subsidiary entity," that is, a partnership or corporation, or an LLC taxed as a partnership or corporation in which the QOF invests. As you might imagine, this is just the tip of the iceberg. For example, vacant land by itself will not be a proper investment for a QOF. In general, you will need a written plan to develop the property into an active trade or business within 31 months. And there are other rules, for example, who the property can be purchased from (the buyer must be unrelated to the seller), how to invest the cash before it is used on the acquisition or the subsequent development, and attention to semi-annual testing dates to assure that your fund remains a QOF. We don't know enough about your investors (and my expertise is tax, not securities law) to advise about what you might have to do in order to attend to any securities laws that might apply to them.

  • Erik Kodesch
    June 19, 2019

    Form the entity. It must be something that is treated for tax purposes as a corporation (including S corporation) or a partnership (including an LLC is more than one member). When filing its 2019 tax return (Form 1120 or Form 1065), attach Form 8996 electing QOF status. Please note that this is just the basic formation issue. There are procedural and substantive issues to work through.

  • Peter McNeil
    June 17, 2019

    First, an entity such as an LLC, corp or S sorp must be created. Then a Form 8996 should be filled out and submitted with the next filing of the entities tax return. The entity must conform to the self-certification tests. Note the entity can not be a disregarded entity