How can I allow crypto investors in my Qualified Opportunity Fund?

Answers

• 

  Marko Belej

  Taft

  June 05, 2022

  Yes, there is nothing in the Opportunity Zone rules that restricts your Qualified Opportunity Fund (QOF) from allowing investors who invest with cryptocurrency. Note that the payment would be treated as a contribution of property, and if such contribution is tax-free, the QOF would take a basis in the cryptocurrency that is equal to the investor's basis in the cryptocurrency. This means that the QOF could recognize gain or loss when it disposes of the cryptocurrency. If the QOF is a corporation, the QOF will take this gain/loss into its own income; if the QOF is treated as a partnership for tax purposes, this gain/loss should be allocated back to the investor who contributed the cryptocurrency. There is no obligation for you to pay your investors in cryptocurrency.

• 

  Matthew Rappaport

  Falcon Rappaport & Berkman

  June 05, 2022

  People who sold crypto are easily allowed. People can also invest crypto, but if there's a value-basis differential (i.e., built-in gain) in the crypto, it gives rise to mixed investment treatment, which is an annoying accounting issue. For the QOF receiving crypto, it'll need to sell the crypto because the crypto itself is not a good asset under the testing rules (there are possible exceptions in crypto-focused businesses, though I have always taken the tack that crypto does not mesh well with the QOZ program).

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