Public Law & Finance
Qualified Opportunity Zones
Qualified Opportunity Zones (“QOZs”), created by the 2017 Tax Cuts and Jobs Act, were designed to spur investment in distressed communities throughout the country using tax incentives.
Roetzel has the resources to enable our clients to take full advantage of this new opportunity.
Roetzel can aid in finding appropriate investment vehicles. To invest in a QOZ, you must do so through a Qualified Opportunity Fund (“QOF”) – any vehicle organized to invest in a QOZ property. There are many potential tax advantages available to investors and we can help with advice, planning, and compliance issues which involve keeping up to date with new IRS rulings, and state and local statutes and regulations.
Investors can include individuals, partnerships, public and private corporations, REITs and quasi-governmental entities, among others.
Entities/Projects Seeking Capital
We can help clients interested in utilizing QOZs by providing financing options, drawing up transactional documents providing guidance through all stages of the project, as well as advising on capital-raise compliance and private equity opportunities.
The team at Roetzel can assess how opportunity zones can be used for community development, including evaluating the impact of investment in QOZs, advising on how to use other economic development incentives to maximize profitability, structuring real estate deals, and operating business investments.
Roetzel’s long-standing connections with government entities at all levels can help our clients benefit from relationships we have forged over time and years of experience in the governmental arena. We are experts in public-private partnerships, zoning regulations, permitting, and can guide clients through complex environmental compliance requirements.
Our team’s extensive knowledge of real estate, tax law, finance, environmental concerns, compliance, construction law, and corporate services including governance, reorganization, corporate tax and entity structure, means we have everything necessary to navigate this field and stay abreast of any new developments. Roetzel can help you incorporate QOZ strategies into your business plans.
TAX ADVICE AND GUIDANCE TO QOFs AND THEIR INVESTORS
Roetzel can aid investors in maximizing the tax benefits of an investment in a QOF and assist QOFs in complying with the federal income tax requirements for obtaining and maintaining their status as a QOF, and in drafting their organizational and other documents to satisfy the QOF eligibility requirements and maximize the tax benefits for their investors. Roetzel attorneys have experience in preparing and reviewing governance, offering and owner documentation with regard to different types of investment vehicles and with the provisions of the Internal Revenue Code and published guidance concerning QOZs and QOFs, and have guided clients on these issues.
A. Investor Benefits. Internal Revenue Code Section 1400Z-2 provides three major tax benefits to investors in a QOF: (1) deferral of tax on gains invested in the QOF (“Invested Gain”) until the first to occur of the sale of the QOF investment or December 31, 2026; (2) an exclusion of 10% of the Invested Gain if the QOF investment is held for at least 5 years and an exclusion of an additional 5% of the Invested Gain if the QOF investment is held for at least 7 years; and (3) a step up in basis in the QOF investment to its fair market value on the date it is sold or exchanged if the QOF investment has been held for at least 10 years. To be eligible for deferral, the investor must invest their gain in the QOF within 180 days of the date of their sale or exchange.
B. QOF Requirements. In order for an investment vehicle to qualify as a QOF it must meet three requirements: (1) it must be organized to invest in QOF property (other than another QOF); (2) it must be a corporation or partnership; and (3) it must hold at least 90 percent of its assets in QOZ property, determined by the average of the percentage of QOF property held in the fund on the last day of the first 6-month period of the fund, and on the last day of the taxable year of the fund. QOZ property means property which is QOZ stock, a QOZ partnership interest and QOZ business property within the meaning of Code Section 1400Z-2 as currently interpreted by Proposed Treasury Regulations published in October 2018 and April 2019. A QOF is required to annually self-certify on IRS Form 8996 that it meets the QOZ property requirements. In order to do so, the QOF will have to acquire appropriate types of property within a QOZ, properly value such properties, and for preexisting properties, double the basis of such properties within 30 months and monitor its investment and business activities so as to continuously meet the QOF requirements. QOFs will also be required to keep apprised of further guidance issued by the IRS, as the proposed Treasury Regulations under Code Section 1400Z-2 have not been finalized and there are many questions which remain to be addressed.
C. Documentation. A QOF should explain the tax benefits available to their investors in their offering documents and should ensure that their governance documents and owner agreement are properly drafted to deliver those benefits. To maximize the tax benefits from an investment in a QOF (and minimize the detriments), those documents should ensure that the purpose of the fund is to invest in QOF property and to maintain at least 90% of its investment in such property, contain governance controls to make sure those requirements are met, and contain provisions that enable its investors to meet the holding periods to achieve maximum deferral of their Invested Gain and full step-up in their basis in their QOZ interest to fair market value; avoid transactions that would cause the investors to prematurely recognize Invested Gain or gain with respect to their QOF investment or unintended gain due to distributions in excess of basis in the QOF; and provide a mechanism for investors who hold QOF interests on December 31, 2016 to receive a distribution from the QOF upon their recognition of their Invested Gain on that date (taking into account their 10% or 15% reductions, as may be applicable) without triggering gain on that distribution. Roetzel attorneys can aid clients in ensuring that these objectives are met.
What We Do
- Corporate tax advice/guidance and entity structuring
- QOF requirements
- Financing documents
- Transactional documents
- Structuring real estate deals and real estate development
- Public-private partnerships
- Zoning regulations and permitting
- Environmental compliance
- Use/maximization of economic development incentives