WHO TO CONTACT DURING THE LIVE PROGRAM For Additional Registrations: -Call Strafford Customer Service 1-800-926-7926 x1 (or 404-881-1141 x1) For Assistance During the Live Program: -On the web, use the chat box at the bottom left of the screen If you get disconnected during the program, you can simply log in using your original instructions and PIN. IMPORTANT INFORMATION FOR THE LIVE PROGRAM This program is approved for 2 CPE credit hours. To earn credit you must: • Participate in the program on your own computer connection (no sharing) – if you need to register additional people, please call customer service at 1-800-926-7926 ext. 1 (or 404-881-1141 ext. 1). Strafford accepts American Express, Visa, MasterCard, Discover. • Listen on-line via your computer speakers. • Respond to five prompts during the program plus a single verification code. • To earn full credit, you must remain connected for the entire program. Qualified Opportunity Fund Partnership Investments Under 1400Z: Special Timing and Deferral Opportunities THURSDAY, AUGUST 29, 2019, 1:00-2:50 pm Eastern FOR LIVE PROGRAM ONLY
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WHO TO CONTACT DURING THE LIVE PROGRAM
For Additional Registrations:
-Call Strafford Customer Service 1-800-926-7926 x1 (or 404-881-1141 x1)
For Assistance During the Live Program:
-On the web, use the chat box at the bottom left of the screen
If you get disconnected during the program, you can simply log in using your original instructions and PIN.
IMPORTANT INFORMATION FOR THE LIVE PROGRAM
This program is approved for 2 CPE credit hours. To earn credit you must:
• Participate in the program on your own computer connection (no sharing) – if you need to register
additional people, please call customer service at 1-800-926-7926 ext. 1 (or 404-881-1141 ext. 1).
Strafford accepts American Express, Visa, MasterCard, Discover.
• Listen on-line via your computer speakers.
• Respond to five prompts during the program plus a single verification code.
• To earn full credit, you must remain connected for the entire program.
Qualified Opportunity Fund Partnership Investments
Under 1400Z: Special Timing and Deferral OpportunitiesTHURSDAY, AUGUST 29, 2019, 1:00-2:50 pm Eastern
FOR LIVE PROGRAM ONLY
Tips for Optimal Quality FOR LIVE PROGRAM ONLY
Sound Quality
When listening via your computer speakers, please note that the quality
of your sound will vary depending on the speed and quality of your internet
connection.
If the sound quality is not satisfactory, please e-mail [email protected]
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY
THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY
OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT
MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR
RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
You (and your employees, representatives, or agents) may disclose to any and all persons,
without limitation, the tax treatment or tax structure, or both, of any transaction
described in the associated materials we provide to you, including, but not limited to,
any tax opinions, memoranda, or other tax analyses contained in those materials.
The information contained herein is of a general nature and based on authorities that are
subject to change. Applicability of the information to specific situations should be
determined through consultation with your tax adviser.
Qualified Opportunity Fund Partnership Investments
August 29, 2019
Terminology
Abbreviation Term
QOZ Qualified Opportunity Zone
QOZB Qualified Opportunity Zone Business
QOZBP Qualified Opportunity Zone Business Property
NQFP Non-Qualified Financial Property
QOF Qualified Opportunity Fund
QOZP Qualified Opportunity Zone Property
PTE Pass-through Entity
6
Overview
Qualified Property
Investor
Qualified Opportunity
Fund
Qualified Business
• Tangible property• Acquired by purchase• New or substantially improved• Used in QOZ
• Only capital gains• Timing –180 days• Rollover gain deferral and
reduction• Post-acquisition gain exclusion
• Geography• Corp or P/S invests in QOZ
property• 90% of assets are QOZ property• Mixed funds
• 70% qualified property• 50% or > of total income in QOZ• 40% of intangibles used in
business• Not too much cash/securities• No sin businesses
Cash or property
Stock or partnership interest
*Source: Staff of the Joint Committee on Taxation, June 2019 - Doc 2019-238147
Background
• Created as part of the Tax Cuts and Jobs Act that was signed into law December 22,
2017
― Established 2 new code sections 1400Z-1 and 1400Z-2
• This provision is designed to incentivize long-term investment in low-income and
economically distressed communities
• Is available to a wide range of taxpayers - individuals, C Corps (including RICs and
REITs), S Corps, partnerships, trusts and estates
• Taxpayers have the ability to defer paying tax on capital gains by investing those
capital gains into QOFs which in turn invest in QOZP
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Structural Scenarios
Scenario 1: Partner(s) initially contributed non-eligible gains to QOZB; now wish to
replace those funds with eligible gains and take advantage of OZ benefits.
Scenario 2: OZ Land acquired by an LLC/Partnership after Dec. 31, 2017
Scenario 3: Existing OZ land held by an LLC/Partnership acquired before Dec. 31,
2017
Scenario 4: Working Capital Reserve (i.e., examples of WCR in action)
Scenario 5: How/when to cash-out using proceeds of a non-recourse financing
Tax Incentives
• The 1st main tax incentive for taxpayers is the temporary deferral of inclusion of capital gain
into taxable income
• The gain must be derived from a sale/exchange with an unrelated party (20% test)
• Includes all types of gain treated as capital gain for Federal income tax purposes:
― Short-term capital gain and long-term capital gain would qualify
― Unrecaptured 1250 gain would qualify
― Gain subject to section 1245 and 1250 recapture would NOT qualify
― Only net Section 1231 gain (subject to end of year netting process and the 5-
year lookback rules for section 1231 losses)
― The 180 day period for reinvesting net Sec. 1231 gains does not begin until
the last day of the tax year
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Tax Incentives (cont’d)
Zero
Bas
is
BASIS
10% Basis
15% Basis
At time of sale or exchange or taxable year that includes December 31, 2026, remaining rollover gain is recognized and tax is paid. If investment has lost value, gain is computed using fair market value
After 5 years, basis is increased by 10% of the rollover gain
After 7 years, basis is increased by and additional 5% of the rollover gain
Basis starts at zero
Ro
llove
r G
ain
A
mo
un
t
*Source: Staff of the Joint Committee on Taxation, June 2019 - Doc 2019-2381411
Tax Incentives (cont’d)
The 3rd main tax incentive is the permanent exclusion of post-acquisition appreciation
on the original investment in the QOF
• This incentive is only available to those taxpayers who have held their
investment in the QOF for at least 10 years
• Can hold investment through December 31, 2047 and still qualify for
permanent step up
• The taxpayer’s exit strategy from the QOF will determine the ability for the
taxpayer to exclude some or all gain on sale of the investment.
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180-Day Rule
The proposed regs permit a partnership to elect to defer the gain at the pass-through
entity (PTE) level (these rules also apply to other PTEs and their shareholders or
beneficiaries - S corps/trusts/estates).
• To the extent the partnership (or PTE) does not elect deferral, the partner or
shareholder etc., will be permitted to do so
• The partner’s 180-day period generally begins on the last day of the
partnership’s tax year
• Alternatively the partner may choose to begin his or her own 180-day period
on the same date as the start of the partnership’s 180-day period
The deferral election will be made using IRS Form 8949
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Qualified Opportunity Fund
A QOF is an investment vehicle organized as a corporation or partnership whose purpose is
to deploy funds into qualified opportunity zone property
• Funds will undergo a self-certification process by filing Form 8996
• Form 8996 will need to be attached to the timely filed federal income tax return for
the fund, including extensions
• Must hold 90% of its assets in qualified opportunity zone property
― Failure to meet the 90% asset test will result in penalties
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Qualified Opportunity Fund
*Source: Staff of the Joint Committee on Taxation, June 2019 - Doc 2019-2381416
Census Tracts Designated as Opportunity Zones
There were criteria around which census tracts that could be nominated by the Governors of
each state and subsequently approved by the IRS
• Leveraged definitions under Sec. 45D(e) for what was considered a low-income
community
The designation and approval process is now complete
• 31,848 Eligible Low-Income Community census tracts
• 10,312 Eligible Non-Low-Income Community Contiguous tracts
• 8,764 Designated QOZs
• A complete list of the designated Qualified Opportunity Zones can be found in IRS
Notice 2018-48
The Community Development Financial Institutions Fund has created a mapping tool that will
There are 2 different ways a QOF can invest in eligible property
The 1st way is a direct investment in “Qualified Opportunity Zone business property (QOZBP)”
• This includes tangible property such as machinery and equipment, furniture and fixtures, buildings, tenant improvements and land acquired by the QOF by purchase after 12/31/17
• Substantially all of the use (70%) of the property must be in the QOZ for substantially all (90%) of the QOF’s holding period
• The original use of the property in the QOZ must commence with the taxpayer
• Alternatively the fund can substantially improve the property
― Substantial improvement requirement is met if during a 30-month window following acquisition, the basis of the property increases by an amount that exceeds the amount of the adjusted basis at the beginning of the period
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Qualified Opportunity Zone Property (cont’d)
The 2nd way of investing in eligible property is an indirect investment through a qualified
opportunity zone stock or a qualified opportunity zone partnership interest
• The stock or partnership interest must be acquired in exchange for cash after
December 31, 2017
• The corporation or partnership must qualify as a qualified opportunity zone
business (QOZB)
• Must be original issue if acquiring qualified opportunity zone stock (redemption
rule under Section 1202(c)(3) applies)
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Qualified Opportunity Zone Business
• Substantially all (70%) of the tangible property owned or leased by the taxpayer is
qualified opportunity zone business property
• At least 50% of the business’s total gross receipts are derived from the active conduct
of a trade or business
• A substantial (40%) portion of the business’s intangible property is used in the active
conduct of a trade or business
• Less than 5% of the average of the aggregate unadjusted bases of the business
property is attributed to nonqualified financial property (NQFP)