On October 19, 2018, the IRS issued highly-anticipated proposed regulations regarding qualified opportunity funds (“QOFs”). As hoped, the proposed regulations provide taxpayers with sufficient initial guidance to start taking advantage of the outstanding tax benefits available to taxpayers making investments in QOFs investing in qualified opportunity zones. Under the new provisions, QOFs allow qualifying taxpayers to invest capital gain proceeds and achieve two significant and distinct tax benefits, (i) a deferral (and 10-15% reduction) of taxation on the original gains and (ii) essentially unlimited tax-free treatment of appreciation while invested in the QOF.
The proposed regulations address several key issues relating to the establishment and qualification of a QOF, as well as the initial investments by taxpayers into such funds. Key sections provide that: only capital gains are eligible for deferral, QOFs may be structured as corporations or partnerships (or LLCs taxed as such), and gain proceeds may be split into one or more QOF investments. The proposed regulations also clarify rules relating to partnerships and create a new working capital 31-month safe harbor with respect to meeting the definition of a qualified opportunity zone business.
Our new article on the significance and implications of the proposed regulations discusses many of the details. The experienced and dedicated attorneys at Gibbons are happy to discuss any questions or scenarios you may have on the subject.