Opportunity Zone Magazine Volume 1, Issue 3 | Page 8

8 OPPORTUNITY ZONE MAGAZINE | VOLUME 1 • ISSUE 3 capital safe harbor provides that Working Capital Assets (i.e. cash, cash equivalents, or debt instruments with a term of eighteen (18) months or less) can be treated as reasonable working capital when the following requirements are satisfied: • The amounts are designated in a writing that identifies the Working Capital Assets being held for the development of a trade or business in an OZ, including when appropriate, the acquisition, construction, and/or substantial improvement of tangible property in an OZ; • There is a written schedule consistent with the ordinary start-up of a trade or business for the expenditure of such assets and the schedule demonstrates that such Working Capital Assets will be spent within 31 months of receipt by the business (the Working Capital Safe Harbor Period); and • The Working Capital Assets are actually used in a manner that is substantially consistent with the above-mentioned written designation and the written schedule (collectively, the Working Capital Plan). Additional 31-month Working Capital Safe Harbor Periods can be obtained for subsequent infusions of Working Capital Assets for an overall period of 62 months from the date of the original infusion of Working Capital Assets, but each infusion needs to separately satisfy the working capital safe harbor provisions. If the QOZB is located within a federally declared disaster area, the QOZB may receive not more than an additional 24 months to consume its Working Capital Assets, as long as it satisfies the working capital safe harbor provisions. The Notice: It was not clear in the regulations whether obtaining the additional 24 months to the Working Capital Safe Harbor Period was automatic. The notice confirmed that the Working Capital Safe Harbor Period is extended by an additional 24 months for QOZBs located in a federally declared disaster area and holding Working Capital Assets intended to be covered by the working capital safe harbor before Dec. 31, 2020, as long as the working capital safe harbor provisions are otherwise satisfied by the QOZB. For example, it is possible for a QOF that makes a cash contribution to a QOZB on Dec. 30, 2020, to have a Working Capital Plan that expends such cash over a 55-month period. This is also helpful in a situation where a QOZB is currently holding cash subject to a Working Capital Plan. In such a case, the QOZB is able to expend those proceeds over an additional 24-month period. It appears possible to extend the aggregate duration of the Working Capital Safe Harbor Periods up to an overall period of 86 months. The regulations allow for additional OPPORTUNITYZONE.COM