East Coast law firm Day Pitney recently wrote an article highlighting many of the biggest unanswered questions about Section 1400Z on qualified opportunity zone funds ahead of the release of official regulations from the IRS.
For commentary on each of these questions, check out the original article at DayPitney.com.
- How does a business’s need for cash balances, cash reserves, and working capital accounts coexist with the 90 percent asset test, which characterizes cash as a “bad” asset?
- How is the 90 percent test applied to a private investment fund in its initial, partial tax year if the fund was created between July 1 and December 31, given that the first measurement date under the test is six months after the start of the tax year?
- In a fund with capital call mechanics, at what point is an investment considered to be made by investors seeking to defer recognition gain? Can investors defer recognition of gain in an amount equal to the full amount of their capital commitment upon making the commitment, or must investors actually wait until the capital is contributed to consider it invested?
- How are assets measured for purposes of the 90 percent asset test? If the metric is fair market value, does the private investment fund need to pay for biannual appraisals of all of its assets? If the metric is adjusted basis, does this create a disincentive for qualified opportunity zone businesses to purchase depreciable assets, which would run contrary to the program’s goal to encourage capital expenditures?
- Does a qualified opportunity fund itself need to be a qualified opportunity zone business? If not, could a qualified opportunity fund make direct investments in the “black listed” businesses that a qualified opportunity zone business cannot invest in?
- How is real estate characterized under the 50 percent gross income test?
- Can investors defer ordinary gain, or does the gain have to be capital?
- Can investors defer capital gains allocated to them by a partnership?