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How do I self-certify to set up my own OZ fund and what are the costs involved?

Is there a minimum amount of capital that makes economic sense when setting up your own OZ fund? What are the set-up costs and ongoing legal and tax costs if I self-certify?

  • Paul Wassgren

    Paul Wassgren

    DLA Piper
    May 12, 2019

    The formation process and costs depend on how complex the deal is. If you will form an OZ fund just for your own money, the fees and costs will be more modest. If you invite others to participate in the investment, the cost will be higher. The range may be $5,000 to more than $75,000 initially for legal. The maintenance costs each year will depend on how many companies you form in your structure. Most likely, you would spend about $1,000 a year to the state, in addition to CPA costs for filing taxes. If you have a prior capital gain of at least $200,000, it may be worthwhile to set up an OZ fund. You can also invest in other OZ funds managed by professionals.

  • Blake Christian
    May 10, 2019

    You file IRS Form 8996 with your return for the year of QOF formation/certification. Even though the form is not terribly complex I recommend that you get assistance from a CPA or attorney to ensure you pick the proper certification date, which must be on or before the date the QOF accepts funds from an investor rolling qualified gains. The cost of completing the form should be relatively nominal - say, an hour of time. However, the attorney or CPA will likely need some time to fully evaluate your specific project. Formation of your QOF and QOZB should be approximately the same as forming any other entity. Monitoring and semi-annual testing of the entities can range from simple to complex, so costs are tough to estimate.

  • Jay Gold

    Jay Gold

    Defer Gain
    May 10, 2019

    To simply self-certify there is little to do. You simply attach an IRS-provided form to your return. The question is in the details. Is this an investment you are making for yourself or are you raising other people's money? The later involves serious security issues ,and I would suggest that you consult a securities attorney. After that, consider the complex tracking and reporting rules imposed by the Treasury. Without knowing your exact situation, I would probably say put your investment in a fund that you feel comfortable with.

  • Brandon Jones
    May 10, 2019

    Have your CPA complete IRS Form 8996 and file with the funds first tax return.

  • Phil Jelsma

    Phil Jelsma

    Crosbie Gliner Schiffman Southard & Swanson (CGS3)
    May 10, 2019

    You complete the Form 8996 each year and certify that the QOF meets all of the requirements set forth in the regulations. I think it only makes sense to do your own fund if you have at least $100,000 to invest. The setup costs should be less than $5,000 and maintenance will depend on the cost of your tax return.


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