How can I start a charity in an Opportunity Zone and benefit from the tax incentive?

Answers

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  Marko Belej

  Taft

  June 14, 2022

  I don't believe that there's a structure by which an investor could both obtain a charitable contribution deduction and defer gains under the OZ rules. In order to receive a charitable contribution deduction, a contributor can't receive anything in return. But under the OZ rules, an investor contributes an amount of capital gain in exchange for an interest in a qualified opportunity fund (QOF). It may be possible to set up a structure that gives investors/donors the choice of either benefit, by (i) forming both a tax-exempt organization (TEO) and a QOF and (ii) having the TEO and QOF invest jointly in a qualified opportunity zone business. There are some issues for the TEO that are beyond the scope of this forum (e.g., whether it can even qualify as a tax-exempt under Section 501(c)(3) of the Code and whether it would recognize UBTI).

• 

  Matthew Rappaport

  Falcon Rappaport & Berkman

  June 14, 2022

  A charitable vehicle cannot be a QOZB. The QOZB must be set up to run a trade or business. A charitable vehicle really can't run a trade or business as its primary activity. If you want a charitable vehicle to fund a QOZB, there are complicated ways to do this with UBTI blockers and whatnot - it's not really my area, but I've heard of it being done in some situations. But money could only go into the QOZB (via QOF) or the charity, not both; the taxpayer would need to choose one tax benefit or the other.

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