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Can a QOF be structured to pay dividends to nonqualified investors without creating a taxable event for qualified investors?


Answers
  • Brett Siglin
    June 11, 2019

    Yes, this is possible.

  • Peter McNeil
    June 07, 2019

    The short answer is that it is totally permissible from an LLC or corporation with separate classes of stock. It would not be permissible under S corporation rules. (Don’t use S corps for Opportunity Zone funds). The longer answer is that a distribution will not necessarily create a taxable event for the qualified investor. A distribution from income or proceeds from qualified non-recourse debt will not create recognition of the tax deferral. If the distribution would be from sale of an asset or return of capital, it could create an inclusion event for some or all other the original tax deferral. In this case, only distributing to the non-qualified investors will preclude an inclusion event for the qualified investors.

  • Adam Yormack
    June 05, 2019

    Yes.

  • Blake Christian
    June 05, 2019

    This should be allowed under a partnership or C corp structure. An S corp structure (which we have never recommended for an OZ structure) would be problematic due to the prohibition against two classes of stock.

  • Maria De Los Angeles Rivera
    June 04, 2019

    A fund may have mixed funds (qualified and non-qualified). It may have different classes of investments and possibly payouts, but this will generate complicated accounting and record-keeping due to the tests that must be met for the qualified investments.

  • Samuel Weiser
    June 05, 2019

    This is more of a question best asked of an attorney. However, you can generally have different classes of investors with different rights. It is likely you could work with your attorney to create a structure that would accommodate dividends to some investors and no dividends to others. However, the accounting for a structure like that can be extremely complicated.