A Qualified Opportunity Zone Business can meet any one of those tests. There is also a "facts and circumstances" test that can be satisfied if all else fails
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How can a QOZB meet the 50% of gross income test?
Does it have to meet all three safe harbors or is it enough to meet one of them?
Answers
One safe harbor is OK, and even if you don't meet any safe harbor, you can still prove compliance with the 50% standard based on facts and circumstances.
A Qualified Opportunity Zone Business (QOZB) can meet any of the safe harbors in order to pass the 50% gross income test. As you mentioned, one of the QOZB requirements is that it must have at least 50% of its total gross income derived from the active conduct of a business in a QOZ. There are three separate ways a QOZB can meet this test, and any way works. The first looks to the number of hours of services performed by employees, service partners, independent contractors (and employees of independent contractors), and the test is met if at least 50% of all of those services performed for a QOZB are performed in a QOZ. The second looks to the total amount paid by the QOZB for services performed by employees, service partners, independent contractors (and employees of independent contractors), and the test is met if at least 50% of all services performed for a QOZB are performed in a QOZ. The third looks to the location of business management, and the test is met if tangible property located in a QOZ and management or operational functions performed in a QOZ are each necessary for the generation of at least 50% of the gross income. There is also a “facts and circumstances” test than can be used if the QOZB does not meet any of the three safeharbors mentioned above, but QOZBs should never rely upon this test.
You are able to choose the safe harbor that works best for your facts and circumstances.
The regulations provide three ways in which the 50% test may be met in addition to a fact and circumstances determination: 1. 50% of the hours spent on services are physically performed within the zone regardless of where the customer is located; 2. 50% of the amounts paid for services come from services performed within the zone regardless of where the customer is located; 3. The tangible property of the business and the management and or operational functions actually located inside the zone are necessary to generate 50% of gross income.
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