What are the rules on deployment of funds into an OZ business and what expenses are allowed?

Answers

• 

  Samuel Weiser

  JMP OppZone Services

  June 04, 2019

  You can invest capital gains into a business that operates out of an Opportunity Zone but you can’t hold the funds indefinitely in a bank account. The funds need to be deployed into an operating business that meets the qualifications of being a "trade or business" as defined in the tax code. In addition, there are tests that need to be met in order for the business to qualify as a qualified Opportunity Zone business as defined in the regulations. These tests relate to the assets of the business in the Opportunity Zone and the amount of income generated from Opportunity Zone operations. Generally, 70% of the businesses assets need to be located in an Opportunity Zone and more than 50% of income for the business needs to be generated within an Opportunity Zone.

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  Matthew Rappaport

  Falcon Rappaport & Berkman

  June 04, 2019

  The safe harbor dictates that for all new cash invested, you need a business plan and schedule of capital deployment that ensures the working capital will be spent down within 30 months of receipt by the business, and along the way, you'll need to demonstrate substantial compliance with the plan and schedule.

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  David LeGrand

  LeGrand Legal

  June 03, 2019

  In general, there are no special rules as to allowable expenses, other than the usual ordinary and reasonable tests of IRC 162 and 212. Yes, you can use the money in the business as and when needed. There is no particular schedule required, other than a general requirement to deploy the funds within 31 months.

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  Shawn Neidorf

  Arizona Commerce Authority

  June 03, 2019

  There are limits on how much cash may be on hand, either at the fund or company level. The second tranche of Treasury guidance addresses how cash can be set aside (without becoming a problem, rules wise) to be used for business expenses over a 31-month period.

• 

  Peter McNeil

  Comprehensive Financial Solutions and Tax

  June 07, 2019

  To get the tax deferral and other tax benefits, you must invest capital gain proceeds within 180 days of the event creating the capital gain into an Qualified Opportunity Fund. The cash can be kept in a bank account owned by the fund, not a bank account owned directly by you, the investor. Then you should have a business plan to deploy the assets so that you meet the 70% qualified asset test within 31 months. The 31 months can extended for delays created by government agencies. All business expenses that would be allowed for a non-Opportunity Zone business will also be allowed for your Opportunity Zone business. Keep in mind that losses generated in the early years can be suspended by the at-risk and passive loss rules at the individual level.

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