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How do I prepare a written plan for capital in order to qualify for the Working Capital Safe Harbor?

I know there needs to be a written plan showing that capital was held for making improvements to tangible QOZ property. Are there rules for how that plan should be set out?

  • Katherine Noll
    July 31, 2019

    The treasury regulations published on May 1 provide two examples of what the IRS expects to be in the written plan that complies with the working capital safe harbor. Per the proposed Treasury regulations, the written plan should include a schedule for the use of the capital for the development of a trade or business in a QOZ within 31 months of receipt, including when appropriate, the acquisition, construction, and/or substantial improvement in a QOZ. The second example in the proposed regulations contemplates a second written plan when additional capital was contributed. Note that the working capital assets should also be actually expended a manner substantially consistent with the plan and schedule.

  • Maria De Los Angeles Rivera
    July 27, 2019

    The regulations do not provide template or examples. I will recommend to include as much details as possible regarding the timeline and requirements for the project.

  • Kim Taylor
    July 25, 2019

    In answer to your question, there are no specific rules, but a written, itemized description of how the money will be/was used and an estimated timetable for making the expenditures should be sufficient.

  • Scott McIntosh
    July 25, 2019

    The IRS hasn't issued a specific form or template for the working capital safe harbor, though the most recent round of proposed regulations provides several examples of acceptable uses of the safe harbor. I'd recommend reviewing those examples and structuring your plan with sufficient detail, including timelines, projected expenditures, and progress milestones, to ensure you can demonstrate you "substantially complied" with the plan.

  • Forrest Milder
    July 23, 2019

    There isn't much in the way of rules here. Indeed, the community doesn't really know if the plan has to be specific to a particular project. The regulations simply say the following: [To satisfy the safe harbor] "all of the following three requirements are satisfied: (A) Designated in writing. These [working capital assets] are designated in writing for the acquisition, construction, and/or substantial improvement of tangible property in a qualified opportunity zone, as defined in section 1400Z–1(a). (B) Reasonable written schedule. There is a written schedule consistent with the ordinary start-up of a trade or business for the expenditure of the working capital assets. Under the schedule, the working capital assets must be spent within 31 months of the receipt by the business of the assets. (C) Property consumption consistent. The working capital assets are actually used in a manner that is substantially consistent with paragraph (d)(5)(iv)(A) and (B) of this section." Consistent with the foregoing, I'd pick out a property and do a rough out of what I plan to do to it, how I will pay for it, when I need the money, and how much. Then, I'd do a spreadsheet with several columns. The first would be the title of the particular activity (negotiate acquisition documents, seek bank financing, acquire the property, get permits, pour the foundation, install the plumbing, etc.). The second might have identifying information, like the architects, banks, builders, etc., that I plan to contact (or who they are if they are already arranged). Next w