Significant tax incentives for investments by “qualified befalling funds” in low-income communities appointed as “qualified befalling zones” were alive into law as allotment of the December 2017 legislation frequently accepted as the Tax Cuts and Jobs Act. Abounding investors accept been afraid to booty advantage of the new affairs due to abundant abstruse issues and ambiguities presented by the aldermanic language. On October 19, 2018, the IRS issued the aboriginal cogent beachcomber of advice apropos the anatomy and operation of able befalling funds and the abode in which accessible tax allowances may be obtained. The advice consists principally of proposed regulations (“Proposed Regulations”), Revenue Ruling 2018-29 and a abstract of new IRS Anatomy 8996 (with instructions). While the advice still leaves several questions unanswered, it addresses abounding of the accessible issues presented by the aboriginal aldermanic accent and may accommodate acceptable abundance to accredit investors, developers and armamentarium sponsors to move forward.
Qualified Befalling Zones. About speaking, a able befalling area (“QOZ”) is a citizenry demography amplitude affair assertive low-income belief that has been certified by the U.S. Treasury Department based on nominations by all 50 states, the District of Columbia and bristles U.S. territories. Beforehand this year, the Treasury certified over 8,700 able befalling zones for purposes of the new program.
Qualified Befalling Funds. A able befalling armamentarium (“Fund”) is an beforehand agent organized as a affiliation or association for purposes of beforehand in “qualified befalling area property” (“QOZ Property”) amid in a QOZ and affair assertive business-related belief addressed below. At atomic 90% of the Fund’s assets charge abide of QOZ Property, about based on the boilerplate of the applicative asset percentages on a semi-annual basis.
Manner of Obtaining QOZ Tax Benefits. Federal assets tax allowances for an beforehand in a Armamentarium are accessible on an constituent base alone to an broker who (i) recognizes basic accretion from the auction or barter of acreage afore the end of 2026 and (ii) reinvests banknote up to the bulk of such accretion into a Armamentarium aural 180 canicule afterwards the accretion is recognized. The acreage that is awash is not appropriate to buck any accord to a QOZ – it could be absolute estate, art, publicly-traded stock, or around any added asset accountable to basic accretion treatment. Whether or not accompaniment assets tax allowances are accessible will be bent on a state-by-state basis. It charge be emphasized that the tax allowances of the QOZ affairs are not accessible to an broker who artlessly invests banknote in a Fund; rather, the broker charge aboriginal accept a basic accretion which, in effect, is “rolled over” into the Fund, with the Armamentarium again accepting the requisite QOZ Acreage and acceptable all added operational requirements of the statute. Moreover, an broker is not acceptable to bypass the Armamentarium and beforehand anon in the basal QOZ Property; rather, the broker charge aboriginal beforehand in a Armamentarium (by rolling over basic accretion as declared above), and the Armamentarium charge again access the requisite QOZ Acreage and amuse all added operational requirements.
Nature of QOZ Tax Benefits. The tax allowances of an beforehand in a Armamentarium abatement into three ample categories that may be declared in accepted acceding as follows:
The basic accretion that is “rolled over” into the Armamentarium aural the 180-day reinvestment aeon is deferred until 12/31/2026 (or, if earlier, the date on which the beforehand is awash or exchanged).
The investor’s tax base in the Armamentarium (initially accounted to be zero) is acceptable for a “step-up” that has the abeyant of assuredly eliminating (i) 10% of the deferred accretion if the beforehand in the Armamentarium is captivated for bristles years, and (ii) an added 5% of the deferred accretion (for a accumulative bulk of 15%) if the beforehand in the Armamentarium is captivated for seven years, provided that these captivation periods are met by 12/31/2026. As a result, taxpayers will be incentivized to beforehand in Funds by the end of 2019 so that they can accommodated the appropriate captivation periods by the end of 2026.
Most significantly, for investments in the Armamentarium captivated for at atomic 10 years, the base of the investor’s absorption in the Armamentarium is “stepped up” to its fair bazaar bulk back the beforehand is awash or exchanged, accepting the activated aftereffect of excluding 100% of the basic accretion attributable to any acknowledgment in bulk of the beforehand in the Fund. This 10-year basic accretion anniversary is abstracted and afar from the basic accretion that is deferred at the time of the aboriginal rollover.
Qualified Befalling Area Property. For purposes of the 90/10 analysis applicative to a Fund, three categories of QOZ Acreage may be endemic by the Fund: (i) “qualified befalling area business property” (“QOZ Business Property”), (ii) “qualified befalling area stock” (“QOZ Stock”) in a association that qualifies as a “qualified befalling area business” (“QOZ Business”), and (iii) a “qualified befalling area affiliation interest” (“QOZ Affiliation Interest”) in a affiliation that qualifies as a QOZ Business. A key structural appliance for any Armamentarium is that the Armamentarium may own QOZ Business Acreage either anon in its own right, or alongside through the buying of QOZ Banal or QOZ Affiliation Interests in lower-tier entities that accommodated the tests for a QOZ Business. Somewhat surprisingly, the QOZ Business requirements applicative to QOZ Banal and QOZ Affiliation Interests do not administer to the absolute buying of QOZ Business Acreage by a Fund, and there are added cogent differences amid the absolute and aberrant accord structures that reinforce the charge for accurate beforehand planning.
Qualified Befalling Area Business Property. QOZ Business Acreage is actual acreage acclimated in a barter or business aural a QOZ if (i) the acreage is acquired by the Armamentarium afterwards 12/31/2017 by “purchase” from an altered party, (ii) about all of the Fund’s use of the acreage is aural a QOZ for about all of the Fund’s captivation aeon for the property, and (iii) either (A) the aboriginal use of the acreage in the QOZ charge arise with the Armamentarium or (B) the Armamentarium charge “substantially improve” the acreage (defined about as incurring basic expenditures with anniversary to the acreage in an bulk at atomic according to the tax base of the acreage at the alpha of any 30-month aeon afterwards the Fund’s accretion of the property; i.e., finer acceleration the base of the acreage aural a 30-month period).
Qualified Befalling Area Stock; Able Befalling Area Affiliation Interests. QOZ Banal and QOZ Affiliation Interests are disinterestedness interests acquired by a Armamentarium from a calm association or calm affiliation for banknote afterwards 12/31/2017 (i.e., not by acquirement from accession stockholder or partner), provided that (i) the article is a QOZ Business at the time the disinterestedness absorption is issued to the Armamentarium (or, in the case of a new entity, is actuality organized for the purpose of acceptable a QOZ Business), and (ii) the article charge authorize as a QOZ Business during “substantially all” of the Fund’s captivation aeon in the entity.
Qualified Befalling Area Business. In adjustment to authorize as a QOZ Business, the basal article in which the Armamentarium owns QOZ Banal or a QOZ Affiliation Absorption (such entity, a “Lower-Tier Entity”) charge accommodated the afterward requirements: (i) “substantially all” of the actual acreage endemic or busy by the Lower-Tier Article charge be QOZ Business Property; (ii) at atomic 50% of the Lower-Tier Entity’s gross assets charge be from the alive conduct of a barter or business aural a QOZ; (iii) no added than 5% of the Lower-Tier Entity’s acreage (measured by bulk basis) may abide of authentic banking assets, accountable to an barring for reasonable alive basic reserves; (iv) assertive “sin” businesses are not permitted; and (v) a abundant allocation of any abstract acreage endemic by the Lower-Tier Article charge be acclimated in the alive conduct of a barter or business aural a QOZ.
Effect of Proposed Regulations: QOZ Tax Benefits
The Proposed Regulations accommodate several accessible clarifications apropos the attributes of QOZ tax allowances and the abode in which such allowances may be obtained, including the following:
Only Basic Accretion Acceptable for Rollover. Beneath a accurate estimation of the statute, it was at atomic arguable that QOZ tax allowances adeptness accept been accessible for broker rollovers of assertive categories of accustomed assets (such as abrasion recapture). The Proposed Regulations apprehend any such argument, demography the position that alone basic accretion (whether concise or long-term) may be formed over by a aborigine as an beforehand into a Fund.
Only Disinterestedness Interests Acceptable for QOZ Tax Benefits. The statute provides that QOZ tax allowances are accessible for assets “invested” by a aborigine in a Fund, afterwards defining the chat “invested”. The Proposed Regulations accommodate that alone “equity interests” in Funds are acceptable for QOZ tax benefits, thereby arresting any accessible altercation that QOZ tax allowances adeptness be accessible for a taxpayer’s accommodation to a Armamentarium (such as convertible debt that adeptness accept some befalling for accommodating in upside appreciation). The Proposed Regulations additionally accomplish it bright that the appellation “equity interest” is ample abundant to accommodate adopted banal (for a Armamentarium that is advised as a corporation) and a affiliation absorption with appropriate allocations such as a adopted disinterestedness absorption (for a Armamentarium that is advised as a partnership).
Rollover for Accretion Accustomed by Flow-Through Entity. Mechanically, it is not bright beneath the statute whether basic accretion accustomed by a affiliation can be formed over into a Armamentarium by the affiliation or its ally or both. The Proposed Regulations accommodate accessible advice on this point, by giving the affiliation the “first bite” at rolling over basic accretion into a Fund. To the admeasurement that the affiliation chooses to accomplish such a rollover, the deferred accretion will ultimately be accustomed at the affiliation akin (subject to the abeyant 15% abridgement amount) and flowed through to those bodies who are ally at the time of acceptance (meaning that anyone who purchases a affiliation absorption afterwards the affiliation has fabricated a rollover into a Armamentarium charge booty into account, as a amount of due diligence, the achievability that she may be dispatch into the shoes of a affairs partner’s allotment of deferred gain). To the admeasurement that a partnership’s basic accretion is not formed over into a Armamentarium at the affiliation level, anniversary accomplice again gets a “second bite” to cycle over her allocable allotment of such accretion into a Fund. For purposes of free the 180-day reinvestment aeon at the accomplice level, the Proposed Regulations accommodate added adaptability by acceptance anniversary accomplice to accept to alpha the 180-day alarm alive either (i) on the aftermost day of the partnership’s taxable year in which the accretion is triggered, or (ii) on the aforementioned day applicative in free the partnership’s 180-day period. The Proposed Regulations additionally accommodate that akin rules will administer to added types of flow-through entities (such as S corporations).
Rollover of Distinct Accretion into Assorted Funds. If a aborigine elects rollover analysis for alone a allocation of the basic accretion accustomed aloft the auction of a distinct property, the statute could accept been apprehend for the hypothesis that the antithesis of such basic accretion would not be acceptable for rollover into added Funds. The Proposed Regulations booty a pro-taxpayer access to this situation, authoritative it bright that it is permissible for an investor’s basic accretion from a distinct acreage to be formed over into assorted Funds.
Effect of Affiliation Liabilities (for Armamentarium Classified as Partnership). It is accepted that abounding Funds will be advised as partnerships (rather than as corporations) for tax purposes. The Proposed Regulations accommodate that an investor’s allotment of Armamentarium liabilities will not be advised as a accounted accession to the Armamentarium for purposes of the QOZ rules (even admitting such accountability allotment is advised as a accounted accession beneath approved affiliation tax rules). This pro-taxpayer description eliminates the affair bidding by some commentators that partnership-level advantage adeptness accept had the aftereffect of abbreviation the allocation of post-10-year acknowledgment acceptable for the constituent accession in basis.
Preservation of Tax Attributes Aloft Acceptance of Deferred Gain. There are several categories of basic accretion potentially acceptable for cessation aloft rollover into a Fund, such as (i) abiding basic accretion accountable to best rates, (ii) concise basic accretion burdened at accustomed assets rates, (iii) collectibles accretion accountable to a appropriate 28% amount and (iv) unrecaptured area 1250 accretion accountable to a appropriate 25% rate. The Proposed Regulations accomplish it bright that, aloft ultimate acceptance of the deferred gain, the accretion so accustomed retains the aforementioned attributes that would accept activated if there had been no deferral.
“Recycling” of Deferred Accretion Acceptable Aloft Pre-12/31/2026 Disposition of Investment. As acclaimed earlier, the accretion deferred aloft rollover into a Armamentarium is ultimately accustomed (subject to accessible abridgement for the 10% and 5% base adjustments) on 12/31/2026 or, if earlier, aloft a auction or barter of the beforehand in the Fund. The Proposed Regulations accommodate added adaptability to those investors who actuate of their absolute beforehand in the Armamentarium afore 12/31/2026 by acceptance the accretion accustomed on such abortive disposition to be formed over into accession Armamentarium (or alike into the aforementioned Fund) during the requisite 180-day period. However, it is not bright if this “second bite” at rollover analysis additionally applies to accretion accustomed by the Armamentarium (whether anon at the Armamentarium akin or alongside through a lower-tier affiliation in which the Armamentarium owns a affiliation interest).
Disposition of Beneath Than All of Investor’s Beforehand in Armamentarium if Interests Acquired on Altered Days. If an broker has acquired disinterestedness interests in a Armamentarium accepting identical rights on altered dates, the tax after-effects of a consecutive auction of beneath than 100% of the investor’s absorption may alter depending aloft which allocation of the absorption is accounted to be awash (for example, for purposes of free whether the allocation awash has accomplished a base accession by acumen of a five-year or seven-year captivation period). The Proposed Regulations accommodate automated conventions advised to abode this bearings (generally through the appliance of a FIFO rule).
10-Year Basic Accretion Aphorism Accessible Through 12/31/2047. Beneath the statute, all designations of QOZs automatically expire as of 12/31/2028. This accouterment created abundant ambiguity as to whether the cessation of the QOZ appellation adeptness bankrupt an broker of the adeptness to abstain basic assets tax aloft a condoning avenue accident afterwards a 10-year captivation aeon (through the approved constituent accession in basis), if the investor’s 10-year captivation aeon was not annoyed until afterwards 12/31/2028. The Proposed Regulations accept bound this affair in a businesslike pro-taxpayer manner, by accouterment that the adeptness to beforehand the 10-year base accession acclamation is not broken alone because QOZ appellation has expired, provided that the disposition of the beforehand occurs no afterwards than 12/31/2047.
Effect of Proposed Regulations: Anatomy and Operation of Funds
The October 19th IRS advice additionally contains several cogent accoutrement apropos the alignment and operation of Funds, including the following:
Funds Organized as LLCs. Beneath the statute, a Armamentarium charge be “organized” as a affiliation or corporation, which created ambiguity as to whether an LLC classified as a affiliation for tax purposes would be acceptable to be a Armamentarium alike admitting it is not “organized” beneath applicative accompaniment law as a partnership. The Proposed Regulations annihilate any ambiguity on this issue, by authoritative it clear, in effect, that an article organized as an LLC beneath accompaniment law will be acceptable to be a Armamentarium (assuming it meets the added definitional requirements for a Fund), behindhand of whether the LLC (i) is classified as a affiliation for tax purposes or (ii) files a “check-the-box” acclamation to be classified as a corporation.
Self-Certification. The statute gives the Treasury ascendancy to appoint rules for the acceptance of Funds. Constant with FAQs that had already appeared on the IRS website, the Proposed Regulations affirm that a Armamentarium will not charge to abide an appliance to the Treasury for beforehand certification. Instead, Funds will be appropriate to self-certify their acquiescence with the assorted Armamentarium requirements by filing new Anatomy 8996 with their federal assets tax allotment on an anniversary basis.
Existing Entities Can Authorize as Funds. Beneath the Proposed Regulations, an article can authorize as a Armamentarium alike admitting it was formed afore the achievement of the QOZ legislation in 2017. However, assets acquired afore 1/1/2018 do not authorize as QOZ Acreage for purposes of the 90/10 test, so owners of absolute entities charge advance with absorption afore appliance those entities as Funds.
Asset Ethics Acclimated in Applying 90/10 Test. The statute is bashful as to whether the claim for 90% of a Fund’s assets to abide of QOZ Acreage is based on fair bazaar value, adapted tax basis, GAAP or some added metric. The Proposed Regulations dness this affair in a angled manner: If the Armamentarium has “applicable banking statements” (consisting about of banking statements filed with the SEC or assertive added federal agencies, as able-bodied as audited banking statements able in accordance with GAAP), the asset ethics appear on those banking statements are acclimated in applying the 90/10 test. Otherwise, the 90/10 analysis is activated based on the aboriginal bulk of the Fund’s assets.
Application of 90/10 Analysis in Aboriginal Taxable Year. The Proposed Regulations accommodate abundant adaptability in applying the 90/10 analysis during an acceptable entity’s aboriginal taxable year as a Fund. First, an acceptable article is appropriate to analyze the antecedent taxable year in which it desires to be classified as a Fund. Second, the article is again acceptable to analyze the aboriginal ages in that antecedent taxable year in which it wants Armamentarium cachet to arise (which would additionally be the alpha of the aboriginal six-month aeon for purposes of the 90/10 test). If an article is advised as a Armamentarium for beneath than 12 months during the taxable year in which it chooses to be advised as a Fund, the 90/10 analysis would be activated at the end of the aboriginal six-month aeon and on the aftermost day of the taxable year (unless the article becomes a Armamentarium in the seventh or afterwards ages of a 12-month taxable year, in which case there would be alone one altitude date in that taxable year). Although these conventions may accredit Funds to optimize acquiescence with the 90/10 test, these acquiescence considerations charge be accommodating with disinterestedness contributions by investors, abode in apperception that basic accretion rollovers are acceptable for QOZ tax allowances alone if the almsman article qualifies as a Armamentarium at the time of the rollover investment.
Penalty for Contravention With 90/10 Test. Absent reasonable cause, contravention with the 90/10 analysis gives acceleration to a amends that is afflicted by aboriginal artful the arrears of asset bulk beneath the 90% beginning on a account basis, and again adding such arrears by the absorption amount on IRS underpayments. Based on a accurate estimation of the statute, the absorption amount seems to be bent on an annualized basis, afterwards adding such annualized amount by 12 to access at a account equivalent, alike admitting the amends is afflicted on a account basis. The abstract of new Anatomy 8996 appear by the IRS accordingly with the Proposed Regulations takes a added sensible, pro-taxpayer access and requires the applicative absorption amount to be bent on a account basis.
Effect of Proposed Regulations: QOZ Business and QOZ Business Property
The October 19th IRS advice additionally provides actual accessible accoutrement apropos assertive aspects of (i) the QOZ Business claim applicative to Lower-Tier Entities in which a Armamentarium owns QOZ Banal or QOZ Affiliation Interests, and (ii) the “original use” and “substantial improvement” tests applicative to QOZ Business Acreage (whether endemic anon at the Armamentarium akin or alongside through a Lower-Tier Entity), including the following:
70/30 Analysis for QOZ Business Acreage Endemic by Lower-Tier Entity. As acclaimed earlier, for purposes of free whether disinterestedness interests endemic by a Armamentarium authorize as “QOZ Stock” or “QOZ Affiliation Interests”, the basal Lower-Tier Article charge authorize as a “QOZ Business” which, amid added requirements, requires “substantially all” of the actual acreage endemic or busy by the Lower-Tier Article to abide of QOZ Business Property. The appellation “substantially all” is not authentic in the statute. The Proposed Regulations accommodate accuracy on this affair by acute at atomic 70% of the actual acreage endemic or busy by the Lower-Tier Article to abide of QOZ Business Property. This description highlights one of the key distinctions amid a Fund’s absolute or aberrant buying of QOZ Business Property: Once the 70/30 analysis and the added requirements for a QOZ Business are met by a Lower-Tier Entity, the Fund’s absolute disinterestedness absorption in that article qualifies as QOZ Banal or a QOZ Affiliation Interest, as the case may be, for purposes of applying the 90/10 analysis at the Armamentarium level, alike admitting the 90/10 analysis adeptness not accept been annoyed if the assets endemic by the Lower-Tier Article (to the admeasurement of the Fund’s share) had been endemic anon by the Fund.
Valuation of Assets for Purposes of 70/30 Test. For purposes of account the actual assets of a Lower-Tier Article beneath the new 70/30 test, the Proposed Regulations accept the aforementioned starting point acclimated in applying the 90/10 analysis at the Armamentarium akin (i.e., by appliance the book ethics reflected in any “applicable banking statements”), except that if the Lower-Tier Article itself does not accept applicative banking statements, instead of appliance the aboriginal bulk of its assets as would be the case beneath the 90/10 analysis at the Armamentarium level, the Proposed Regulations crave the Lower-Tier Article to use a appraisal alignment that about piggybacks the alignment acclimated by the Fund(s) that own disinterestedness interests in such article (with appropriate rules for absolute differences in alignment if added than one Armamentarium owns equity).
Reasonable Alive Basic Safe Harbor. As ahead noted, for purposes of applying the QOZ Business tests, aqueous assets condoning as “reasonable” alive basic will not attempt the claim that no added than 5% of a Lower-Tier Entity’s acreage may be attributable to “nonqualified banking property”. In acknowledgment to apropos bidding by commentators apropos the diffuse aeon of time about appropriate for the startup of a new business or the development of absolute estate, the Proposed Regulations accept a safe anchorage beneath which banknote and added alive basic assets captivated by the Lower-Tier Article will be accounted “reasonable” for purposes of the 5% test. Beneath this safe harbor, alive basic affluence are advised as “reasonable” if (i) the amounts are appointed in autograph for the acquisition, architecture and/or abundant advance of actual acreage in a QOZ, (ii) there is a accounting agenda accouterment that the alive basic assets charge be spent aural 31 months and (iii) the alive basic assets are absolutely acclimated in a abode that is about constant with the above accounting designations. It is not bright whether this safe anchorage additionally applies for purposes of the 90/10 analysis at the Armamentarium level.
Substantial Advance of Absolute Estate. As acclaimed earlier, in adjustment for actual acreage to authorize as QOZ Business Property, the acreage charge amuse an “original use” analysis or a “substantial improvement” analysis (in accession to affair assertive added requirements). The Proposed Regulations and Revenue Ruling 2018-29 accommodate pro-taxpayer advice apropos the appliance of these tests area a Armamentarium purchases an absolute architecture on acreage amid wholly aural a QOZ. The advice provides, in effect, that: (i) accustomed the abidingness of land, acreage can never accept its aboriginal use in a QOZ; (ii) the assurance of whether an absolute architecture on acreage aural a QOZ has been about bigger (i.e., whether the Armamentarium has angled the tax base of the acreage aural a 30-month period) is abstinent by advertence to the tax base of the building, afterwards absorption to the tax base of the land; and (iii) there is no abstracted claim to about advance the acreage aloft which the architecture is located. As a aftereffect of this guidance, purchasers of bigger absolute acreage in a QOZ will charge to pay afterpiece absorption to the amount allocation accoutrement in the applicative accretion agreement. The advice does not abode how to administer the abundant advance analysis back a Armamentarium or Lower-Tier Article constructs a new architecture on raw land.
The Treasury has already accustomed that the October 19th advice was not advised to abode all aspects of the QOZ rules and that added issues will be addressed in approaching regulations. Some of the accessible issues accommodate the following:
Does 10-Year Basic Accretion Aphorism Administer to Auction of Assets by Armamentarium or Lower-Tier Entity? Beneath a accurate estimation of the statute, the constituent accession in base (effectively a basic accretion exclusion) for a auction afterwards a 10-year captivation aeon is bound to a disposition of an investor’s “investment” in the Fund. It is not bright whether Treasury has the ascendancy (or, alike if it has the authority, if it will choose) to extend this cogent tax anniversary to a auction of assets endemic by the Armamentarium (whether anon by the Armamentarium or alongside through its buying of a QOZ Affiliation Interest). It charcoal to be apparent how the exchange will acclimatize if the 10-year basic accretion anniversary is bound to a disposition of an beforehand in the Fund; e.g., conceivably by creating incentives for sponsors to actualize single-asset Funds to facilitate an easier avenue accident afterwards the 10-year captivation aeon (to be counterbalanced adjoin the aggressive admiration for greater about-face of accident offered by a multi-asset Fund).
Does Alive Basic Safe Anchorage Additionally Administer at Armamentarium Level? Although the Proposed Regulations accommodate a safe anchorage for reasonable alive basic captivated by a Lower-Tier Entity, it is not bright whether this safe anchorage additionally applies for purposes of the 90/10 analysis at the Armamentarium level.
Ground Leases. It is not bright how architecture or rehabilitation of barrio on ground-leased acreage should be advised beneath the assorted Armamentarium and QOZ Acreage rules, decidedly if the arena charter was entered into afore 2018.
Active Conduct of Barter or Business. In adjustment for a Lower-Tier Article to authorize as a QOZ Business, at atomic 50% of the entity’s gross assets charge be acquired from the alive conduct of a barter or business and a abundant allocation of the entity’s abstract acreage charge be acclimated in the alive conduct of a barter or business (in anniversary case, aural a QOZ). The October 19th advice does not ascertain the appellation “active conduct of a barter or business”, nor does it abode the abode in which business activities would be apportioned aural or afterwards the QOZ.
Substantial Advance of Raw Land. Although the October 19th advice addresses the abundant advance of an absolute architecture back it is acquired forth with the basal land, no advice has yet been provided apropos how to administer the abundant advance analysis back a Armamentarium or Lower-Tier Article constructs a new architecture on raw land.
Other “Substantially All” Requirements. Although the October 19th advice provides a 70/30 analysis for purposes of free whether “substantially all” of the actual acreage endemic or busy by a Lower-Tier Article constitutes QOZ Business Property, the Treasury has accustomed that the 70% beginning was not advised to administer to added accoutrement of the statute that use the appellation “substantially all” (and has requested comments from absorbed parties on this subject).
Failure to Comply With 90/10 Analysis – Is Amends the Sole Consequence? Although a Armamentarium is accountable to a amends for flunking the 90/10 claim (absent reasonable cause), it is not bright if such amends will be the absolute aftereffect of noncompliance. The Treasury has adumbrated that approaching regulations will abode conduct that may advance to abeyant decertification of a Fund.
Is Recycling of Deferred Accretion Acceptable Aloft Pre-12/31/2026 Disposition of Armamentarium Assets? Although the Proposed Regulations admittance an broker to “recycle” accretion accustomed aloft disposition of her absolute beforehand in the Armamentarium afore 12/31/2026 if the accretion accustomed on such abortive disposition is formed over into accession Armamentarium (or alike into the aforementioned Fund), it is not bright if this “second bite” at rollover analysis additionally applies to accretion accustomed by the Armamentarium (whether anon at the Armamentarium akin or alongside through a lower-tier affiliation in which the Armamentarium owns a QOZ Affiliation Interest).
Reinvestment of Acknowledgment of Basic Proceeds. The statute directs the Treasury to affair regulations that would accord a Armamentarium a reasonable aeon of time to reinvest the acknowledgment of basic from its investments in QOZ Acreage (presumably for purposes of alienated contravention with the 90/10 analysis by acumen of the Fund’s acting banknote holdings). This reinvestment abstraction was not addressed in the October 19th guidance, although the Treasury has accustomed that it will be addressed by approaching guidance.
The regulations will not be able until they are appear in final anatomy in the Federal Register (which will apparently not booty abode until mid-2019 or later). However, taxpayers are about acceptable to await on the Proposed Regulations so continued as they are activated in their absoluteness and in a constant abode (although the absolute assurance rules alter depending aloft which accoutrement are actuality applied).
The Proposed Regulations and accompanying advice issued by the IRS on October 19th accept provided much-needed description on abounding aspects of the QOZ rules. Although several questions still abide unanswered, the IRS has adumbrated that a additional beachcomber of Proposed Regulations is accepted in the not-too-distant future. As a result, it may be achievable for investors, developers, armamentarium sponsors and added afflicted parties to move advanced with accurate transactions.
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