Very easy. Self-certify and file the form with the IRS.
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How does an entity become a Qualified Opportunity Fund (QOF)?
What do I need to do to create my own fund to pool investments for our project?
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An eligible entity taxed as a corporation or partnership may file Form 8996 and self-certify itself as a Qualified Opportunity Fund. It needs to comply with several tests as described in the law and regulations.
An entity is eligible for self-certification as a QOF if it is a tax corporation or a tax partnership and files Form 8996 with the Internal Revenue Service as an attachment to its federal income tax return.
The entity simply needs to be an C corp, S corp (not recommended) or LLC/partnership formed after 2017 and includes language that states the entity is formed for the purposes of operating as an Qualified Opportunity Fund.
There are a series of steps that you need to take. First, a corporation or partnership, including an LLC, needs to be set up as a QOF to begin with. The cash or other property equal to the capital gain needs to be contributed to the entity. And so on.
The process is fairly straightforward, as it is currently a self-designation process. Attention needs to be given to the QOF operating agreement and governing documents regarding the QOF structure.
A Qualified Opportunity Fund (QOF) is a self-certified designation. You need to complete IRS Form 8996. However, to operate as a QOF without negative tax implications for your investors, you need to have at least 90% of your QOF assets invested in a designated Opportunity Zone. Creating a vehicle to accept investment capital requires forming a partnership or corporate vehicle and having legal documents prepared for your investors to review and execute. To attract investors, you will need to prepare due diligence information related to the qualified Opportunity Zone business(es) or qualified Opportunity Zone property(ies) in which the QOF assets will be invested. You can find service providers like ours that will help you with the formation issues you need to address to get the entity funded and to provide ongoing support services to keep investors informed about the status of the underlying investment(s).
Simply self-certify and creating an LLC is the most simple. However, based on your specific situation, you should consult an attorney. To raise money you’ll need subscription documents.
A QOF may be an entity classified as a corporation or partnership for federal income tax purposes, which is organized in any state, the District of Columbia or a U.S. possession. A QOF may be organized as a limited liability company. The QOF must be organized for the purpose of investing in QOZ property (other than another QOF). There is an annual self-certification compliance form that the QOF must file.
First, an entity such as an LLC, corp or S sorp must be created. Then a Form 8996 should be filled out and submitted with the next filing of the entities tax return. The entity must conform to the self-certification tests.
Instructions can be found at the IRS' website for Opportunity Zones, under the "frequently asked questions" section. Be sure you understand the various rules regarding assets and timing of investments before you start it. A good tax lawyer can help with this.
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