I read that country clubs are part of the OZ “sin businesses.” Why? I am starting a large renovation project at the club and I would like to be able to qualify as an OZ business. Are there any ways around this?
I am unaware of any ways for a country club to qualify for the OZ incentive. IRC Section 144(c)(6)(B) states: "(B) no portion of the proceeds of such issue is to be used to provide (including the provision of land for) any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facility used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises."
No. You are stuck without an OZ benefit for this project. As to why, it would be best to ask a politician as to why they viewed country clubs unfavorably.
Correct, the country club itself is a sin business. But if you are starting a renovation project that just happens to be located at the club, it still may qualify if the club is within the borders of an Opportunity Zone. Since I don't quite understand what you mean by "starting a renovation project", I'm afraid I can't properly comment.
To be blunt, probably not. The manifest congressional intent will give both the IRS and the courts the authority to strike down any attempted workaround. The optics are terrible and it'd be a nice poster child for repeal of the entire program. Hate to be the bearer of bad news, but I'd also hate to think about you spending good money trying to make this work and seeing the funds go down the drain.
There is pretty clear congressional intent to preclude Opportunity Zone benefits from flowing to country club owners. I'd recommend "hitting down the fairway" when it comes to OZ projects, and avoiding investment in so-called "sin businesses."
Country clubs are on sin list. Why? Maybe someone in Congress didn’t get a good tee-off time. But there are lots of planning ideas around it.
There may be ways to do this but it is highly technical. Essentially, depending on your facts, you potentially could use a one-tier structure, instead of a two-tier structure. However, to give advice, we would have to know all of the facts and this would require a very detailed analysis. This question cannot be answered simply in a blog post.
Golf courses are explicitly excluded in the statute, so if you are talking about a golf course, I don't think there is a work around.
Not possible, as it's clearly on a prohibited list of assets. The only flexibility might be on doing a development on the outskirts of your course in an independently operated business. This could be a high-rise or assisted living facility adjacent to the course.
Currently there is a bit of a loophole which allows OZ funds to invest directly in "sin businesses," which include golf clubs, but not invest in a Qualified Opportunity Zone Business that operates such a business. But that loophole will likely get closed in the final regulations. Depending on the specific improvements, you might be able to establish a separate entity and certify it as a QOF and fund it with investors who are rolling over qualified gains to modernize the clubhouse/kitchen/ pro shop, etc., and possibly successfully argue that entity is in a separate line of business (vs. operating a golf course). But I would suggest approaching Treasury with your specific facts. You have other hurdles of prior use, pre-2018 acquisition(?), etc., to work around.
The country club is considered a sin business by definition. From the reading of the regulations, there is no possibility that if the business is a country club, it will be able to qualify.
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