This is a great question, but one upon which there is no current direct guidance. Unfortunately, you want to discuss this uncertainty with your tax preparer or consider filing for a private letter ruling.
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What does the second round of regulations say about mergers of QOFs?
Would a merger of two or more QOFs be an inclusion event?
Answers
The regulations in general said QOFs can merge without an inclusion event, provided all taxpayers' interests in the QOFs remain the same after the merger is complete.
I would think it would create an inclusion event for shareholders that are merged out of existence. That said, I haven't looked much at roll-up considerations in this area yet. A QOF cannot own interest in another QOF and have that interest be a qualifying asset for its 90% test.
Many types of combinations will work.
The regulations list several non-recognition events as inclusion events. Section 368(a)(1)(A) is not included. Nevertheless, you should obtain advice from a consultant to determine whether any other inclusion event may apply to the particular case.
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