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I want to relocate an existing business into an Opportunity Zone.

Is this possible? If so, how do I go about this to capture the tax benefits?

  • Ronald Fieldstone
    March 21, 2019

    Yes, this is possible. You would need to acquire a leasehold or fee ownership interest in an Opportunity Zone and invest money in accordance with the regulations. Since it is a pre-existing business, you need a two-tier structure.

  • Kostas Poulakidas
    March 20, 2019

    You would need to move into the zone and structure any new investment to flow into that business from an Opportunity Zone fund. The entity/persons making the investment into the business would then be eligible for the tax benefits.

  • Ed Mofrad
    March 20, 2019

    Yes, it is possible. The response to the rest would be too specific to detail in this forum.

  • Jorge Salichs
    March 21, 2019

    First, we would want to make sure you understand what a qualified Opportunity Zone business is and what an Opportunity Zone Business Property (QOZBP) is. In theory, if I am understanding your question correctly, there is no issue with a business being relocated to a qualified Opportunity Zone business, making it subject to an investment in a QOF. But it is not clear to me that you understand who can receive the tax benefits by investing into a QOF, and who you would be in this scenario.

  • Paul Wassgren
    April 16, 2019

    We are expecting the second round of proposed rules and regulations within the next two weeks, which should provide the guidance we need to structure investments in non-real estate QOZ businesses. At the moment, we know that 50% of the QOZ business' revenues must come from within a Qualified Opportunity Zone. We also understand from the act and from the first round of proposed rules that only capital gains from a prior investment can qualify for the tax benefits. Once the Treasury releases the second round of proposed rules, we should have greater certainty on how to structure the investment.

  • Peter McNeil
    March 26, 2019

    This can be done, but you have to be careful to avoid the related party rules. To avoid the related party rules, your interest must be less than 20 percent in the fund. This means any measure of interest: capital must be under 20 percent; profit-sharing percentage must be under 20 percent; any future promoting must be under 20 percent. If you can have outside investors contribute enough capital so that you are under 20 percent on all three tests listed above, you will qualify. With the related party warning in place, the next step is to create an LLC or other entity and elect Opportunity Zone status. The sell the business to the fund for an interest in the fund less than 20 percent.