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What are the pros and cons of self-certification of a Qualified Opportunity Fund?

Is the cost of setting up and maintaining a QOF worth it or is it better to use an established fund? Why or why not?

  • Peter McNeil
    April 28, 2019

    The pros are that there is less red tape. The con is that there is no outside disciple of reporting to an outside agency on a regular basis. Without this discipline, record-keeping may be sloppy and you could find yourself out of compliance if ever audited. As an investor, you should look for fund managers that will report the self-certifying report back to you or engage an independent CPA firm to audit the certification reports. The investor stands to lose more that the manager if the fund is de-certified and tax deferrals are clawed back.

  • Ed Mofrad
    April 28, 2019

    There is no one simplified/right or wrong answer to that question. Each option involves setting up a QOF. Using an establish fund each has its drawbacks/advantages.

  • Adam Yormack
    April 09, 2019

    A lot depends on scale. As with most businesses, scale and size often equals systemic, macro efficiencies known as economies of scale, and that tipping point exists when determining the "worth" of self-certifying or investing in a fund. Pros of self cert are control over your business and less fees. Con is you're on the hook for mistakes. On the flip side, a managed fund is likely compliant but will eat your gains in management fees.

  • Blake Christian
    April 16, 2019

    Taxpayers have little choice and must self-certify. I suggest having a CPA or attorney who specializes in OZ funds to review it. I generally advise clients to only establish their own fund (vs. investing in a public fund) if they are deferring $1 million or more in gains.

  • Valerie Grunduski
    April 16, 2019

    I think the answer to this question would be specific to your facts and circumstances. If you have a gain and a project that you would like to invest in, self-certification is relatively straightforward and you might appreciate having control of the process. If you are looking for outside capital and are less concerned with control, you might be happy to use an established fund.

  • Paul Wassgren
    April 16, 2019

    A QOF needs to meet the 90% test twice each year, and except for an audit, this is achieved through self-certification, as the rules currently provide. A significant "pro" is the relatively low cost of addressing this requirement. A "con" is that there may be some abuse in the future. The cost of forming and maintaining a QOF may be easily offset by the tax benefits, but that analysis depends on the size of the