What transactions may trigger the inclusion of deferred gains, sales, exchanges, and other transfers in an OZ deal?

Answers

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  Peter McNeil

  Comprehensive Financial Solutions and Tax

  May 16, 2019

  This is a critical question. These are the firm events that will cause inclusion of the deferred gain. The sale of interest in the fund prior to Dec. 31, 2016. Gifting your interest in an opportunity zone fund to another person. (Inheriting an interest upon death does not create an inclusion). Pledging your interest in an Opportunity Zone fund to a loan. (This is similar to the rules for IRAs pledged as a loan). Various restructure events of an OZ business owned by the Opportunity Zone fund could cause an inclusion event. These are too numerous to list. In general, if a restructure would create an implied disposition of interest and recognition of gain out side of an OZ fund, it will likely create a an inclusion of deferred gain from the fund.

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  David LeGrand

  LeGrand Legal

  May 16, 2019

  Any long-term capital gain that is otherwise tax in the U.S. qualifies. Stock, bonds, hard assets, real estate, etc.

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  Debbie Klis

  Rimon P.C.

  May 23, 2019

  Investors and managers of QOZ funds evaluate any proposed transactions carefully to avoid causing deferred gain to be recognized unintentionally. First, cash distributions that do not exceed an investor's basis in an QOZ fund interest will not require an investor to recognize deferred gains. However, investors' basis in their interest in the QOZ fund is initially zero unless increased subsequently by profits allocated to the investor and by the investor's share of the QOZ fund's indebtedness. If an investor's basis is increased, distributions of an investor's share of debt may be permitted. The proposed April regulations describe situations that require an investor to recognize deferred gain before Dec. 31, 2026, such as certain transfers of interests in a QOZ fund, restructurings of the QOZ fund or the interests therein, certain distributions from the QOZ fund, such as following a sale of QOZ property, etc.

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  Matthew Rappaport

  Falcon Rappaport & Berkman

  May 23, 2019

  Inclusion events are detailed in the newest round of proposed regulations. In general, inclusion events involve the original holder of the QOF interest making some disposition of his or her beneficial interest, even in a non-recognition transaction. Before the original holder of a QOF interest engages in any transaction involving the QOF interest, the holder should consult counsel to ensure the transaction will not result in an inclusion event.

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