No. The statute prohibits a Qualified Opportunity Fund (QOF) from investing in another QOF. In general, an Opportunity Zone transaction can only have three tiers: the taxpayer who recognized the capital gain, the QOF and the Qualified Opportunity Zone Business. The taxpayer who recognized the capital gain can be a partnership or S Corporation, but otherwise the owner of a QOF cannot be a pass-through entity at the time the investment is made. However, it may be possible for a partnership that did not recognize capital gain to become an owner of a QOF if a member of the QOF transfers its interest in the QOF to such partnership. The April 2019 regulations allow QOF investors to contribute their ownership interest in a QOF to a partnership without the transfer being treated as an inclusion event to the extent such transfer is made pursuant to Internal Revenue Code Section 721. In general Section 721 provides that no gain or loss shall be recognized to a partnership or any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership. However, such a transfer would be prohibited under the statute if it would result in a QOF owning an interest in another QOF.
