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How can a county set up a QOF to attract investment in infrastructure or housing development?

Can public and private funds be mixed in projects that benefit the community?


Answers
  • Matt Campbell
    March 25, 2020

    Sure, but the QOF must conduct an active trade or business. Investment can be public/private and even non-capital gain investment. Noncapital gain investment won't get any tax benefits, however. If a community nonprofit sets up the QOF, it could generate taxable unrelated taxable income so it may want to limit its percentage ownership and maintain control either through an LP as the GP or as an LLC managing member.

  • Zaida Ricker
    March 24, 2020

    In order to attract investment in infrastructure or housing development, potential investors need to understand not only the tax advantages of making an investment but also the potential to redevelop communities. The first step in identifying and developing relationships with investors is to provide investor education. This could be done by: 1. Organizing and presenting an educational stakeholder event(s) that bring together potential investors, Opportunity Zone municipality leaders, other federal, county and city officials, local nonprofit organizations, community and economic development partners, and others to educate all on the Opportunity Zone tax provision and the benefit to the community. 2. Developing an Opportunity Zone website and/or investment prospectus, which will include an honest assessment and analysis of the zones within the county, an outline of the types of specific projects in the zones, an analysis of the local and supportive investments within the zone, and the qualities specific to attract investors. 3. Coordination of social engagement and events. After awareness campaigns, investors become more interested in the opportunities of a community and it may be prudent to host investor receptions or dinners. The key to a successful presentation and investment pitch is to highlight the entrepreneurial scene, the deal flow availability, and the commitment of local capital.

  • Mark Leeds
    March 23, 2020

    A county could create zoning incentives, property tax assistance and expedited permitting. It could also act as a lender or guarantor. This is an interesting strategy. A project could be structured to accommodate public and private capital.

  • Matthew Rappaport
    March 24, 2020

    There's nothing to my knowledge against setting up a QOF as a public-private partnership. I don't think the IRS would take issue with that. But the more likely setup is what IDAs do for local tax incentives or the NYCHDP does for affordable housing - either a master lease or a nominee ownership type of transaction. The regulations specifically contemplate these.