In this panel from OZ Pitch Day Spring 2022, Ashley Tison takes questions from OZ investors and stakeholders on a wide range of topics.

Industry Spotlight: OZPros

OZPros provides a wide range of consulting, entity formation, compliance, and strategy services to Opportunity Zone investors and Qualified Opportunity Funds.

Learn More About OZPros

• Visit OZPros.com

Webinar Transcript

Jimmy: Stump the Opportunity Zone attorney, that’s what we’re doing here today. Ashley, man, look at that hat. How are you doing?

Ashley: I tell you what, Jimmy, so stump the OZ expert, that’s directly outside of an Opportunity Zone down here in the sunny US Virgin Islands.

Jimmy: That’s right. I forgot to mention, Ashley Tyson’s on vacation. He’s taken 20 minutes out of his vacation on the USVI to join us. So, really appreciate your time and attention here, Ashley. You dressed appropriately for us.

Ashley: I tried to find a dunk tank. So, in case somebody stumps me that we could have somebody on standby to drop me into the dunk tank or maybe into the ocean, or they could have just thrown a bucket of water in my face, that would actually kind of even maybe be funnier.

Jimmy: Ashley, why don’t you just spend a couple of minutes introducing yourself and giving your take on OZs. And then we’ll open up the floor to some live Q&A. If you have questions about Opportunity Zones, any Opportunity Zone questions, try to stump this guy. I know I’ve got a couple from earlier that I’m going to hit you with also, but, Ashley, take it away. And then I’ll break in with some questions when you’re ready.

Ashley: Perfect. So, I like to call myself a reformed attorney. As you can see, I’m doing a pretty good job of that. But I’ve practiced for 21 years. And I’ve kind of gone through a bunch of different stuff. So, I started out as doing corporate and securities work. I ended up being a commercial real estate developer and Tenant-In-Common Sponsor. And then I also had an M&A shot that I ultimately sold, so I could put more money in business owners’ pockets.

When I was doing that I heard about Opportunity Zones, and I was, like, “Holy cow, this is, like, 10/31, and private equity got married.” I said, “It’s a perfect match for my background. I’m in. Let’s do this.” And so we set up OZ Pros, originally as kind of the play to become the LegalZoom for Opportunity Zones.

And we have since become a full-service advisory firm in doing that, where we’re plugging people in with, number one, we’re answering their questions as quickly and as efficiently as possible, both in our strategy calls and through our OZworks Group community.

And then we also do a compliance boot camp, where we have a call like this, every Tuesday from 10 to 11:30 Eastern, and the folks can jump on there and they can ask whatever questions they have relative to Opportunity Zones. And then finally, we’re helping people that either have their own game, and they want to allocate it into their own deals, or they want to put it into a bunch of different deals, and they may not necessarily be absolutely certain where they want to put it.

And so we’ll set them up their own captive Opportunity Fund so that that way they can take advantage of it. So, we actually had the boot camp earlier on today. We had another lawyer inside of the boot camp, and one of the things that he said was actually really poignant.

And I’ve kind of said this my whole time, too, is that once you get your Opportunity Fund to 10 years, it opens up an unbelievable oyster of a place to be able to utilize that captive Opportunity Fund as a method to defer taxes, and to do so, with impact.

And so what is better than that, right, to where you can save taxes and do good at the same time. And so I’m a huge proponent of the Opportunity Zone legislation, and how we can make it better, how we can extend it, and how we can make it so that it can apply to lots and lots of folks, particularly Main Street America.

When we sat down and we formed OZ Pros, Jimmy, we were really excited about democratizing access, and we continue to roll things out in order to do that. So, really excited about where that’s headed, and I think that with some of the recent developments that are happening with potential pending legislation and that kind of thing, I think that we could see even that unfold even more.

Jimmy: I agree, Ashley. Well, we’ve got about 15, maybe I’ll stretch it to 20 minutes for some live Q&A. We’ve got a ton of questions that have come in already. So, we’ll try to stump you today.

Ashley: Awesome.

Jimmy: The first question is, what tax software do you recommend for filing IRS Form 8997 with capital gain from real estate syndications?

Ashley: So, you can kind of use any tax software. I’m not a CPA, but I’m almost positive that all of the tax software that I’ve been a party with the folks, the CPAs that I have helped with this, almost all of them have Form 8997 in the mix now.

So, it should be agnostic because almost all of them have Form 8997 in it. Sometimes inside of the software, you actually have to force 89, the gain, to go through to 8949, but I’ve not seen one yet that doesn’t do 8997 well.

Jimmy: Yeah, I remember last year, I think there was an issue with TurboTax wasn’t fully compliant with the different 8996 and 8997 forms. I know TaxAct did. If you’re filing yourself and you’re looking for one of those web apps, I don’t know if TurboTax is up to speed yet or not, I know TaxAct was last year, just my two cents there. Brett asks, “Can you invest in Opportunity Zones before realizing the capital gain that is being used to ultimately fund the OZ?” Good question.

Ashley: Yes, if you do it in the form of debt. And so, inside of a captive deal, you could absolutely do that because you could basically put your money in as a loan first, and then when you have your capital gain, drop it into the QOF, and then pay off that loan. If you’re doing it into kind of more of an institutional fund, you’d have to talk with them and find out if they’ve got the ability to be able to make that happen. They may or not be able to do that.

Jimmy: Okay. Let’s see, Paul has a good one here, “Do Opportunity Zones…” I think he means Opportunity Zone funds or investors, maybe. Oh, funds, I think he means funds. “Do funds file consolidated returns so the investor does not have to file multiple state income tax returns?” How does that work typically?

Ashley: So, inside of that, I would say that it’s probably going to be a rare fund that’s going to be able to pull off doing a consolidated return to where you’re not going to have to file individually in the states where they’re actually getting income.

And so, it’s kind of like with any kind of partnership. Whenever you’re invested into a syndicated deal that has dealings in lots of different states, you then subject yourself to income in those various states. And so you do typically have to file in those states.

And most CPAs, even, like, smaller ones, are usually pretty adept at that, at figuring out and… Because you’re going to get the information from the fund that where, ultimately, will guide you through the different state filings and that kind of thing. So, like even my small CPA in Charlotte could do that, the one that I had previously.

We had to kind of step up our game when we got into some more complex fun stuff, but he was capable of being able to do the multi-state filings. So, I’d say that it’s rare that you’re going to find one where you don’t have to do that.

Jimmy: Yeah, no, good answer there. Ashok asked this question earlier, and he just resubmitted it because I told him, “Save that one for Ashley, because I don’t know.” And I’m glad you got this one in again here, Ashok. He asked the question, very specific, particular question about Form 8997, column (d), which is the column that’s used for special gain code, he wants to know, “Can it be left blank for stocks and options? There’s no code on the form,” he says.

Ashley: I don’t think that you actually need to, unless it’s odd. I don’t necessarily know that you actually have to fill that out. I’d have to jump into the 8997. So, this, I tell you what, I might have gotten dunked on this one, Jimmy, because I’d have to jump into the form to specifically answer that. And I think we’re going rapid-fire on that one.

Jimmy: We are. I have it open right now, and I know they only have special gain codes for six different categories of gain, and they are kind of those more…less traditional types of gains, like 1256, Section 1231, straddles, collectibles and exempt by treaty, and then deferred gain relating to a non-inclusion transfer. Those are the six.

Ashley: So, I don’t think if you’re not inside of those special gain codes, I don’t think you have to put anything in there.

Jimmy: Probably just leave it blank for most types of gains. I agree, Ashley. But thanks for that question, Ashok, and thanks for remembering…

Ashley: It’s a good one.

Jimmy: …to ask it again. Yeah, it was. Huilan asks, “Can depreciation recapture from selling a rental property invest to a QOF?”

Ashley: Man, unfortunately, no. So, the depreciation recapture is specifically included, that’s booked as income, and incomes not eligible to roll over, both from a…man, because that’s really going to bite when you have to pay the taxes on it, and, two, being able to utilize that as your equity investment into the deal. But unfortunately, it’s not.

Jimmy: Okay, I’ve got an easy one for you here. I think it’s easy anyway. “If I have gains in my own qualified Opportunity Fund, can I invest that into another qualified Opportunity Fund, or do I have to invest it into a qualified Opportunity Zone business?”

Ashley: So, he’s talking about gains that are coming off of a fund, right? So, I’m assuming that the funds sold something prior to 10 years, is that what he’s talking about?

Jimmy: I don’t know. I read it. He says, “If I have gains in my own QOF…” I think he means if he’s funded his own QOF, can the QOF invest in another QOF, or does it have to invest in a QOZB? That’s how I read the question.

Ashley: So, specifically, if you have gains in your QOF, if you are investing the basis amount, that needs to go back into qualified Opportunity Zone property in the form of an investment into a QOZB or directly into property. If it’s the actual gain amount, that actually needs to be deferred either back into the same QOF or into another QOF within 180 days. And that’s going to restart your 10-year clock with respect to that capital gain.

It’s kind of a weird rule relative to, like, what happens prior to 10 years, and that’ll get you to where you can roll over that capital gain.

Jimmy: Yeah, no, good answer there. And I wasn’t sure exactly what he was asking there. But it’s kind of like maybe he was asking if one QOF can invest in another, and that’s a no-no. There cannot be a fund of funding.

Ashley: That’s correct. So, you have to distribute it out to the partners, right? And then the individual members of the QOF could then roll it over into another fund.

Jimmy: Right on. All right, let’s roll on to the next question here. Bob asks, let’s see, “Is an individual’s K-1 distribution from a trust eligible for OZ investing?”

Ashley: If it is a capital gain, so if it came off of the trust, and it was a capital gain that got distributed out to the individual, and then was reported from the trust to the individual, as a capital gain, yes, because it’s just like you got a capital gain from anywhere else.

Jimmy: Okay. Let’s see. How are we doing on time here? It looks like we’ve got another 10 minutes. So, we’re doing really good. Here’s a really good question, starts by saying…this is from an anonymous person, unfortunately, but starts by saying, “Nice hat and shirt. Ashley, can you talk REIT versus partnership structure for a QOZ fund?”

So, we’ve already had, just so you know, Ashley, I don’t know if you may have missed the morning session, but we had a couple of partnerships on. We had a read on. We had some back and forth discussion on which one’s better for taxes. And this question asked, “What are the pros and cons of each, in your view?” It’s a hot topic with different funds having strong opinions each way.

Ashley: Well, thanks for the shout-out on the hat and the shirt. I’m getting a little light on top, so there’s the hat so I don’t get too sunburned. But I figured that the shirt was a good play being down in the USVI. And there is, I know that there’s some bigger shops that are down here that are doing deals in the US Virgin Islands, but they’re specifically doing it as partnerships because the REIT structure was a little bit too complicated for them, relative to some of the nuances about how you’re, like, it’s effectively how you have to report back to the investors.

And so, I do know that there’s a couple of big shops out there. It started out as REITs, and then they shifted over to partnerships because it was easier for them to comply with the Opportunity Zone regulations. Now, as it relates to ultimately back in tax structuring, it gets really into the weeds of, like, what your kind of form is. And obviously, if you’re doing REITs, you’d feel strongly about that. If you’re doing partnerships, you’d probably feel strongly about that as well.

I’m kind of agnostic. But if I were to have to make a choice, I’m a big fan of keeping it simple. And I know that partnerships are way simpler than the REIT structure, or at least they are to me. And so I think that it goes into what’s everybody comfortable with?

Sometimes it can be hard to get your hands around the specific nuances of a REIT. And so, I think that a lot of times, it just becomes easier in the context of communicating a partnership, and then executing on what you have to do with a partnership. And so personally, I’d go the partnership route.

Jimmy: Very good. I like this question from John here, and he clearly did his homework. So, it’s a case study for you to kind of go through here, Ashley. John asks, “We have a botanical garden that has a restaurant and other rental space located in an OZ fund.” I don’t know what he meant by fund there.

Ashley: Maybe he means Opportunity Zone.

Jimmy: Yeah, “We purchased this land before 2017, but want to partner with other investors to improve this business. What’s the best way to be able to partner with other investors as an Opportunity Zone? There’s the related party rule, etc.”

Ashley: And so, man, we have unpacked this one every which way from Sunday. And we’ve talked about bringing it in as a bad asset, and because of the rules and because of the complexity associated with the working capital safe harbor, if you are an existing business versus a startup, your 70% test is typically not turned off for an existing business while you’re in the working capital safe harbor.

So, the best way to handle this is via ground lease. Your ideal way inside of the ground lease is to basically figure out how to monetize the ground lease so that that way you as the underlying person get taken care of, right? And you could probably even monetize that and securitize the ground lease, if it’s got attractive enough terms. But then have that be worked inside of the economics of your deal with the ongoing partner.

And then, if you have capital gains from an outside source, you could actually dump in and invest into their funds, and then partner with them, relative to the improvements that you’re doing on the space. And then you could do that side-by-side on the ground lease because the ground lease cures that related party issue.

Now, if you’re going to buy the land later on down the road, you have to do so at fair market value. But if you’re deep enough into the ground lease, that fair market value could actually be lower because of the fact that it’s subject to a ground lease. And so you can factor that in both to either buying it inside of the Opportunity Zone business, or selling it as part of the ultimate transaction.

And then the final piece is, is that you could always literally sell it, subject to the ground lease, and then you’ve got a recurring revenue stream for however long the ground lease is going to be, 40, 50, 99 years, and it’s just a recurring revenue stream that’s hitting.

Now, how you structure that ground lease is then going to drive whether that recurring revenue stream is getting smoked by inflation, right, which is what you would want to have happen if you’re ultimately going to buy it and transfer it into the QOZB, or if you want it to be keeping up with inflation or exceeding inflation, then obviously, it’s going to be of more value, and you’re probably not going to want to sell it at that point.

So, depending on whether you want to sell or keep, that’s going to drive how you structure that ground lease, but the ground lease is the way to go.

Jimmy: Okay, right on. Great answer there, Ashley. By the way, we have, I think, over 20 questions still. We’re not going to get to all of them. I apologize in advance.

Ashley: Let’s go through them, man. Let’s go rapid fire.

Jimmy: And I apologize in advance. We’re not going to get to all of them. But we will try to get your question answered offline later this week. I’ll try to get Ashley your questions, so if you can include your name and/or email address when you ask your question. If it’s just from an anonymous attendee, I don’t really have a way of getting it answered for you, unfortunately.

But anyways, we’ll move along. Andres Tovar has a question about deadline timing, and it’s a really good one. He asks, “Do I qualify for the 10% basis step-up if I submitted the wire transfer on Friday, December 31, 2021 but the bank didn’t process it until Monday, January 3, 2022?” And he admits, “Yes, I need to find another bank.”

Ashley: Yeah, he does. He definitely does. So, if the bank is…so if you just submitted the wire, and the wire was just sitting there, and they didn’t do any action, they didn’t put it into the Fed system, then I would say no. If they put it into the Fed system, and for whatever reason, it just didn’t happen, but you had a wire confirm dated as of the 31st, I would say that you’re probably pretty good on that one.

You can always go to the IRS and request a private letter ruling relative to whether or not that it’s going to work out. And if it’s substantial enough, you may want to do that.

Jimmy: And it sounds like his intention was there at least. So, I think that helps him, but certainly, it’s kind of, depends on whether or not you get audited 10-plus years down the line, whatever happens. So, you want it as solid of a paper trail as you can form. Is that right?

Ashley: That’s correct. And to that end, depending on how much it is, I mean, if it’s not that much, the private letter ruling will actually cost more than the actual difference of the 10%. So, you just got to kind of evaluate that based upon how much it is. And then also whether you got a wire confirm. If you had a wire confirm, I’d be, like, “Hey, listen, I’m just going to go with it.” If you don’t, I’d say, “Ish, you probably need to go the private letter ruling route.”

Jimmy: Yeah. Good thoughts there, Ashley. Thank you. John Vashon asked this question earlier. I know you like John Vashon questions. So, we’ll get to this one now. He says, “General question about redeployment of capital. Let’s say, a qualified Opportunity Fund closes around a funding on a $100-million raise on December 31, 2021, the end of last year.

They need to redeploy that capital by June 30th, 2022, is that right? And does that mean that they need to reinvest the entire $100 million in new QOZPs and/or QOZBs by that date, or does it allow for some of the $100 million to be earmarked for a substantial improvement in those new entities after that June 30th date?” How would you rapid-fire with these types of questions?

Ashley: Yeah, so where is that? Is that one written out somewhere or did you just read it off?

Jimmy: It is written out in the questions, one of the open questions, actually, the third one down, it’s actually listed from Scott Hawksworth. He reposted it. But it was John Vashon earlier.

Ashley: Okay, so 100 million, they need to redeploy that capital by June 30th. Yes, they do. Does that mean that they need to reinvest the entire 100 million? No. So basically, they just got to drop the cash down into the QOZB. And then they’ve got 31 months to spend that, either on acquiring debt or on your substantial improvements. Easy answer on that one, man.

Jimmy: There you go. Well, that was easy, rapid-fire, indeed. Let’s see, a big question here from Alvin, “I’m hoping you can help, Ashley. How do I establish my own personal QOF?”

Ashley: You call the pros at OZPros.com, and we’ll set it up. We’ve got a really simple process. It’s a flat fee, and we try to keep that as low as possible so that we can help as many people as possible. So, just go to OZPros.com and we can make that happen. And we can get it done usually in under 10 days.

Jimmy: Fantastic. Next question…

Ashley: I will say this as well, if somebody is coming up on a deadline, we do have Shell Funds that actually are set up with an EIN and a bank account so that that way, literally all people have to do is just wire their money into it.

Jimmy: So you can turn that one around within one or two days, typically, right?

Ashley: Within, like, 30 minutes.

Jimmy: Thirty minutes, okay. Well, that’s good to know. So, if you’re really running up against a tight deadline, definitely reach out to Ashley at OZPros.com. Next question, I think we got time for maybe two more questions. We’ll see.

“Ashley, do you have a weekly Zoom session or something that we can join to ask you or live questions as they come up? I’m sure I’ll have questions come up as I process all the content from the day. I was hoping there might be an option where you are available on a format like this. It’s awesome,” this person says.

Ashley: So, we do this every Tuesday from 10 to 11:30. I actually just got done doing it not too long ago. I didn’t have the hat on, and then I had to go walk out on the beach and then came back in here. So, we do it every 10 to 11:30 and that’s in the OZ Pros Compliance Bootcamp, which is a group inside of our OZworks Group community.

OZworks Group is basically like a virtual co-working community for all things Opportunity Zone. So, inside of your membership to that, you get membership to OZworks Group, and then you get on a Zoom call with me from every Tuesday, from 10 to 11:30. We record those sessions. And then I also have a 24/7 support deal where you can post your question, and then I’ll either answer it in a video or we’ll kick it to the next week.

Jimmy: Terrific. Let’s see. Well, we’ll do one more question here. This one’s from Bob. Bob has been asking a variation of this question once or twice earlier today. He’s really interested in more short-term rental-type properties as opposed to longer-term leases on, like, multifamily or office.

He’s asking, “Are short-term rentals for seniors, students, or corporate rentals possible in a QOF?” I told him I’ve seen a couple of QOFs do student housing. But I don’t know if you have any thoughts on that, Ashley, maybe you’ve seen some other types of projects come through? What do you see?

Ashley: Absolutely. You could do whatever you want on Opportunity Zone as long as it’s trade or business. That’s the great thing. So, if you could short-term rental it, you’re not precluded from doing so. You absolutely need to have that sucker on Airbnb, because it’s going to bring way more than long-term rent.

So, that being said, if you’re interested in having a positive impact relative kind of workforce development, stuff like that, there’s also that play. So, you can add…there’s no restriction in the side of the Opportunity Zone, right? It’s about what you do, just as long as you’re making money.

Jimmy: Fantastic. Well, let’s see, I think we are at time, Ashley. And we still have…

Ashley: So, I tell you what, Jimmy, there was one thing in there that was…

Jimmy: Go ahead.

Ashley: …a question that I saw. It said, “If I want to get involved in extending out the Opportunity Zone legislation, what can I do?”

Jimmy: Yes.

Ashley: And I can tell you exactly, I was in a session with Congressman Patrick McHenry on Friday, and he specifically walked through this exact issue. You need to call your Congressman. You need to write your Congressman. And you need to not only tell them that you want to see this program extended, but you need to tell them the stories about what’s happening good inside of the Opportunity Zones, where you are because they’re just not hearing it.

They’re hearing the “Huffington Post.” They’re hearing the “New York Times.” They’re naysaying the program like crazy, and they’re not hearing the good stuff. So, call your Congressman. Reach out to them via email, hit them up on their socials, and they will respond. And what’s crazy is that a lot of them, the actual Congressmen actually pick up the phone.

And so, that is hands down, the best way that you can do it. The second thing is, is go to the polls in November, and you need to vote for the ones that are supporting it. That’s a tasting point of the best way that we can get this program extended, and make it have the effect that we need to have in order to really advance the communities that need this, and to put it in the hands of the folks at Main Street America, which is where it should be.

Jimmy: Really glad you brought that up, Ashley. I meant to touch on that, too. I’m going to announce…I don’t even know if I’m allowed to announce this yet or not. I don’t know if we’ve 100% locked this in. Ashley, I don’t even think we’ve told you about this yet, but you’re going to be invited for sure, Chris Cooley, and Rachel Riley, Catherine Lyons from EIG, and I, are going to be participating on an event, live event, similar to this one, but only an hour-long on April 28th.

It’s going to be all about how you can do just that, and the steps that we can all take together as an industry and a group of investors to get the Opportunity Zone policy extended. So, we’re going to be having a little bit of a group session on that about a month from now on April 28th. If you’re on my email list, and if you’re here, you likely are, you have to be by now, Ashley.

Ashley: There’s actually a really good article that’s out and it’s kind of a blog. And then there’s a resource about where you can go to get your Congressman’s phone number, email address, and that kind of thing. And so we’ll make sure to get that out there into the community. Go ahead, and we’ll really probably bump that on to participate in that event.

Jimmy: Absolutely.

Ashley: That’s going to be key.

Jimmy: Yep. So, we’ll send out more information on that event as it gets closer. But, yeah, great question there, and thanks for bringing that up, Ashley, perfect. Great seeing you today. Hope you have a lovely time in USVI.

Ashley: Absolutely. Thanks, Jimmy. And if you could get me those questions, and I will specifically answer those, and I can maybe, especially the emails, I can drop them in an email in a video. And I’d love to answer all of the questions that were there today. I’m sorry we didn’t have enough time to get to them.

But once again, we do this every Tuesday from 10 to 11:30 Eastern Time. I’d love to have you guys into OZ Pros Compliance Bootcamp.

Jimmy: Fantastic. Okay, well, I’ll make sure to pass those along to you. Thanks, Ashley. Take care.

Ashley: Thanks, Jimmy. Have a good one.