I have heard that cash is treated differently depending on where it is invested?
Cash at the QOF level is generally a bad asset unless the QOF is conducting a business directly and requires the cash for legitimate business reasons, generally speaking. There is an exception for the receipt of brand new cash from a QOF investor. On the QOZB level, cash is explicitly subject to a working capital safe harbor if certain requirements are met. You should also note the difference between the 90% test for QOFs and the 70% test for QOZBs; the latter allows up to 30% "bad assets."
A QOF has a 90% investment standard. This means that with an exception for the 6 months following any contribution of capital, 90% of the fund's assets must meet the definition of QOZP. From a QOZB, there is no similar test. For the 70%, substantially all tangible property test, cash would not be considered tangible property and therefore not a factor. That said, a QOZB is not to have more than 5% of its assets in nonqualified financial property, which cash could be outside of reasonable working capital or usage of the working capital safe harbor during the ramp-up period.
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