Yes, this is possible. You would need to acquire a leasehold or fee ownership interest in an Opportunity Zone and invest money in accordance with the regulations. Since it is a pre-existing business, you need a two-tier structure.
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I want to relocate an existing business into an Opportunity Zone.
Is this possible? If so, how do I go about this to capture the tax benefits?
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You would need to move into the zone and structure any new investment to flow into that business from an Opportunity Zone fund. The entity/persons making the investment into the business would then be eligible for the tax benefits.
Yes, it is possible. The response to the rest would be too specific to detail in this forum.
First, we would want to make sure you understand what a qualified Opportunity Zone business is and what an Opportunity Zone Business Property (QOZBP) is. In theory, if I am understanding your question correctly, there is no issue with a business being relocated to a qualified Opportunity Zone business, making it subject to an investment in a QOF. But it is not clear to me that you understand who can receive the tax benefits by investing into a QOF, and who you would be in this scenario.
The way that the proposed regulations are written, it appears to be possible to move an existing business into a QOZ and still capture the tax benefits. The way to do this is to move the business into a QOZ and then have a Qualified Opportunity Fund invest in the business after it has moved. One of the three types of investment that a qualified opportunity fund can make is in "qualified opportunity stock," which is stock in a company that has 70 percent of its tangible property, rented or leased in a QOZ. The Qualified Opportunity Fund doing this would have to meet all of the additional requirements, such as the funds being from capital gains.
This can be done, but you have to be careful to avoid the related party rules. To avoid the related party rules, your interest must be less than 20 percent in the fund. This means any measure of interest: capital must be under 20 percent; profit-sharing percentage must be under 20 percent; any future promoting must be under 20 percent. If you can have outside investors contribute enough capital so that you are under 20 percent on all three tests listed above, you will qualify. With the related party warning in place, the next step is to create an LLC or other entity and elect Opportunity Zone status. The sell the business to the fund for an interest in the fund less than 20 percent.
I recommend first talking to a tax attorney about the benefits to a business that locates into an Opportunity Zone. Whether you plan on renting space or purchasing a property will dictate what benefits you could receive. You'll also need to create an Opportunity fund, which can be self-designated, that the IRS will need to deem as a Qualified Opportunity Fund.
At a high level we are fairly sure it’s possible and there is an assets test that 90% of your assets needs to be in the zone.
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