What are the three safe harbors that a QOZB need to meet to fulfill the 50 percent test?

Answers

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  Guy Nicio

  Windes

  August 29, 2019

  50% gross income safe harbors are: at least 50% of services (by employees and independent contractors) performed based on hours are performed within the zone; at least 50% of services (by employees and independent contractors) performed based on amounts paid for the services performed are performed within the zone; a. tangible property of the business in the QOZ and management or operational functions performed for the business in the QOZ are each necessary to generated at least 50% of the gross income of the business.

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  Jonathan McGuire

  Aldrich CPAs and Advisors

  August 30, 2019

  First, 50% or more of total hours of services are performed inside of a QOZ. Second, 50% or more of total revenues from services are performed inside a QOZ. Third, tangible property and management functions in the zone are necessary to generate at least 50% of revenues. The regulations allow for a facts and circumstances based test where at least 50% of the income in a QOZB is earned inside a zone. This will only be used if you can't meet one of the above 3 tests as a best practice.

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  Maria De Los Angeles Rivera

  Kevane Grant Thornton

  August 30, 2019

  To satisfy the rule of generating at least 50% of gross income from an active business in an area, one of the following tests may be used: at least 50% of the hours related to the services provided by the business are incurred in an area; at least 50% of the fees paid for services for the business are performed in an area; the assets of the business located in the area and the management or operational functions carried out in the area are necessary to generate at least 50% of the gross income of the business; based on the facts and circumstances, at least 50% of the business is generated from a commercial activity in an area. There are no exceptions to safe harbor tests.

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  Matthew Rappaport

  Falcon Rappaport & Berkman

  August 30, 2019

  There don't seem to be exceptions. The safe harbors are broadly 50% of services performed, 50% of revenues received, or 50% of management and operations. You can still satisfy a facts-and-circumstances analysis even if you don't meet any of the safe harbors.

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  Scott McIntosh

  Opportunity Zone Consulting Group

  August 30, 2019

  The first safe harbor in the proposed regulations requires that at least 50 percent of the services performed (based on hours) for such business by its employees and independent contractors (and employees of independent contractors) are performed within the Qualified Opportunity Zone. The second safe harbor is based upon amounts paid by the trade or business for services performed in the Qualified Opportunity Zone by employees and independent contractors (and employees of independent contractors). Under this test, if at least 50 percent of the services performed for the business by its employees and independent contractors (and employees of independent contractors) are performed in the qualified opportunity zone, based on amounts paid for the services performed, the business meets the 50-percent gross income test found in section 1397C(b)(2). The third safe harbor is a conjunctive test concerning tangible property and management or operational functions performed in a Qualified Opportunity Zone, permitting a trade or business to use the totality of its situation to meet the requirements of sections 1400Z-2(d)(3)(A)(i) and 1397C(b)(2). The proposed regulations provide that a trade or business may satisfy the 50-percent gross income requirement if the tangible property of the business that is in a Qualified Opportunity Zone and the management or operational functions performed for the business in the Qualified Opportunity Zone are each necessary to generate 50 percent of the gross income of the trade or business. Thus, for example, if a landscaper’s headquarters are in a Qualified Opportunity Zone, its officers and employees manage the daily operations of the business (occurring within and outside the qualified opportunity zone) from its headquarters, and all of its equipment and supplies are stored within the headquarters facilities or elsewhere in the Qualified Opportunity Zone, then the management activity and the storage of equipment and supplies in the Qualified Opportunity Zone are each necessary to generate 50 percent of the gross income of the trade or business. Aside from those three safe harbors, there is a fallback "facts and circumstances test" that a QOZB could use to prove they meet the threshold without falling into a specific safe harbor.

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  John (Jack) Wegmann

  John Wegmann CPA

  August 31, 2019

  Businesses only need to meet one of the safe harbors to satisfy the test. The first safe harbor in the proposed regulations requires that at least 50% of the services performed (based on hours) for such business by its employees and independent contractors (and employees of independent contractors) are performed withing the QOZ. The second safe harbor is based upon amounts paid by the trade or business for services performed in the QOZ by employees and independent contractors (and employees of independent contractors). The third safe harbor is a conjunctive test concerning tangible property and management or operational functions performed in a QOZ. Finally, taxpayers not meeting any of the other safe harbor tests may meet the 50-percent requirement based on a facts and circumstances test if, based on all the facts and circumstances, at least 50 percent of the gross income of a trade or business is derived from the active conduct of a trade or business in the QOZ.

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  Peter McNeil

  Comprehensive Financial Solutions and Tax

  September 23, 2019

  A Qualified Opportunity Zone Vusiness, the business must pass one of the following three tests. One, 50% of revenues must generated from or inside the Opportunity Zone or 50% of revenues are generated to the Opportunity Zone. Two, 50% of employee hours or wages paid are in the Opportunity Zone. Three, 50% of management responsible for generating revenue must be inside the Opportunity Zone.

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