Opportunity Zone Magazine Volume 1, Issue 3 | Page 15

HOW DO I START MY OWN QOF? 15 determined through a facts-and-circumstances test with three different safe harbors. • The 40% minimum threshold for intangible property that must be used in the QOZB’s active trade or business. • The 5% maximum for non-qualified financial property. • For property leased from a related party, compliance associated with the permissible terms of the lease. may not end up as rigorous as other incentive programs under the tax code, certain mistakes may still result in disaster, so be mindful of assembling and coordinating the right group of professionals when starting your own QOF. The process is conceptually easy at a bird’s-eye view but could be deceptively tricky when parsing the details. Judgment calls requiring close collaboration between the various professionals working with the QOF and QOZB will include: • Whether and when to enact a cash-out refinance of the QOZB’s investments in compliance with the anti-abuse rules. • How to treat mixed investments and inside-outside basis disparities when the statute and regulations are not clear about how to address certain nuances. • Initial structuring (e.g., single vs. multiple QOFs or single vs. multiple QOZBs) and reorganizations to account for changing circumstances. With such a tangle of statutory and regulatory provisions to deal with, taxpayers should not attempt to navigate the OZ program themselves. The accounting team, transactional counsel, and tax counsel are all critical pieces of the advisory puzzle, and each adviser should communicate regularly with the others. Although the enforcement of the OZ program Matthew E. Rappaport is the vice managing partner of Falcon Rappaport & Berkman PLLC, and chairs its taxation and private client groups. He concentrates his practice on taxation relating to real estate, closely held businesses, private equity funds, and trusts and estates. He advises clients on tax planning, structuring and compliance for commercial real estate projects, all stages of the business life cycle, generational wealth transfer, family business succession, and executive compensation. Rappaport has experience in complex deals involving Section 1031 Exchanges, the Opportunity Zone program, freeze partnerships, private equity mergers and acquisitions, and qualified small business stock. OPPORTUNITYZONE.COM