The opportunity zone (OZ) rules generally require you to defer gain up-front, and not have inclusion event for 10 years, in order to receive the basis step-up in a qualified opportunity fund (QOF) after a 10-year hold. However, there are exceptions: certain inclusion events that result from distributions in excess of basis from QOF partnerships or QOF corporations do not disqualify the QOF interest as a qualifying investment. In this case, you may be able to invest your deferred gains in a QOF partnership or QOF corporation and then take out a distribution that triggers an inclusion event (but does not upset the basis step-up after 10 years). The tricky part is that some period of time may need to elapse to avoid the disguised sale rules (in the case of a QOF partnership) and economic substance doctrine (relating to circular cash flows). So this strategy may work if you want to trigger the gain after two years, but not if you want to recognize it in 2021.
