92 OPPORTUNITY ZONE MAGAZINE | ISSUE 2 • VOLUME 2
business tangible property requirements . Finally , a business can meet the QOZ business intangible property requirement by ensuring that its intangible property is located and used in an opportunity zone . For example , if a business ’ s intangible property consists of software code , the business would want to ensure that the code is saved to devices used in an opportunity zone office and encourage employees to access the code in the opportunity zone office where possible . In short , with a bit of forethought and planning , QOZ funds may include a wide variety of businesses . its provisions could result in the loss of the program benefits and the imposition of penalties and interest . To that end , it is important that QOZ funds , considering the appropriateness of investments as QOZ businesses , consult with experienced advisors and counsel to ensure that businesses will operate in a manner that meets the QOZ program requirements .
In addition to location-bound businesses like brick-and-mortar stores or even manufacturers that ship products worldwide , many SaaS and other software businesses with high growth potential may qualify as QOZ businesses .
MANY BUSINESSES MAY QUALIFY AS QOZ BUSINESSES , BUT CAREFUL PLANNING IS NEEDED FOR COMPLIANCE
While the QOZ program is certainly a great vehicle for real estate projects , QOZ funds may also find operating businesses ranging from manufacturers to software businesses attractive as they consider where to deploy deferred gains . The breadth of operating businesses that may qualify as QOZ businesses is perhaps underappreciated . This presents significant untapped potential for QOZ funds to diversify beyond real estate and enjoy the exclusion benefit for high growth operating businesses . 16 However , while the QOZ program is potentially available for a wide variety of businesses , failure to comply with
Paul Valentine is partner at Quarles & Brady LLP and a member of the Business Law Practice Group . His practice emphasizes structuring corporate , partnership and real estate transactions ; counseling medium and small businesses and tax-exempt organizations in tax matters , and establishing and counseling opportunity zone funds . He also regularly assists clients in various industries with all aspects of merger and acquisition transactions . Valentine has been an adjunct professor at the Arizona State University , College of Law , and previously used to be a member at Jennings , Strouss & Salmon , PLC . He studied law at the American University Washington College of Law and New York University .
Via 1031 exchanges 2 IRC § 1400Z-2 ( a ) & ( b ). 3 IRC § 1400Z-2 ( b )( 2 )( B )( iii ) & ( iv ). 4 IRC § 1400Z-2 ( c ). 5 IRC § 1400Z-2 ( d )( 3 )( A )( i ). 6 Treas . Reg . §§ 1.1400Z2 ( a ) -1( b )( 2 ), 1.1400Z2 ( d ) -2( d )( 4 )( i ). 7 IRC § 1400Z-2 ( d )( 2 )( D )( i ). 8 IRC §§ 1400Z-2 ( d )( 3 )( A )( ii ), 1397C ( b )( 4 ). 9 Id . 10 Treas . Reg . § 1.1400Z2 ( d ) -1( d )( 3 )( ii )( A ). 11 Treas . Reg . § 1.1400Z2 ( d ) -1( d )( 3 )( ii )( B ). 12 IRC §§ 1400Z-2 ( d )( 3 )( A )( ii ), 1397C ( b )( 2 ). 13 Id . 14 Treas . Reg . § 1.1400Z2 ( d ) -1( d )( 3 )( i ). 15 Id . 16 The Exclusion Benefit may become even more attractive as Congress considers limiting exclusions permitted under Section 1202 , as is currently included in the $ 3.5 trillion reconciliation bill proposal .
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