How will IRS conduct tests to ensure that investments maintain at least 90% of their assets in an OZ?
The IRS does not conduct the tests. It is up to the fund owner or manager and its advisors to self-certify by doing and documenting its own testing with adequate substantiation as with any tax deductions. Then if the IRS audits the return, the fund owner/manager must provide the documented evidence to prove that it meets the 90% test for every six months testing period.
The IRS doesn't conduct the tests. The QOF conducts the tests and reports the results to the IRS on Form 8996, which has been updated to include details about such reporting. Instructions about how the QOF should conduct the tests can be found in the final regulations.
This information is self-reported on Form 8996. This includes the testing at the fund and requires underlying information on property owned in QOZB's. As to how the IRS will audit this data upon examination, it is to be determined.
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