7 Differences between the INDIRECT APPROACH and DIRECT APPROACH to Opportunity Zone Financing

The 7 differences between the Indirect Approach and the Direct Approach include:

• the Indirect Approach requires the Opportunity Zone Fund to invest in and hold at least 90% of its assets in Qualified Opportunity Zone Stock and/or Qualified Opportunity Zone Partnership Interests; however, the Direct Approach has no such requirement;
• the Indirect Approach does not require that the Opportunity Zone Fund invest in or hold any tangible property; however, the Direct Approach requires the Opportunity Zone Fund to invest in and hold at least 90% of its assets as tangible assets;
• the Indirect Approach does not require the Opportunity Zone Fund to invest in or hold any Qualified Opportunity Zone Business Property; however, the Direct Approach requires that the Opportunity Zone Fund to invest in and hold at least 90% of its assets in Qualified Opportunity Zone Business Property;
• the Indirect Approach does not limit the percent in the ownership of intangible property of the Opportunity Zone Fund (provided a substantial portion is used in the active conduct of business); however, the Direct Approach requires that less than 10% of the average of the aggregate unadjusted bases of the Opportunity Zone Fund’s property be attributable tangible property including “nonqualified financial property.”
• the Indirect Approach requires less than 5% of the average of the aggregate unadjusted bases in the Opportunity Zone Fund’s property be attributable to “nonqualified financial property;” however, the Direct Approach, as discussed above, requires less than 10% of the average of the aggregate unadjusted bases in Opportunity Zone Fund’s property be attributable to “nonqualified financial property,” including any tangible property;
• the Indirect Approach requires that at least 50% of the total gross income of the Opportunity Zone Fund be derived from the active conduct of a Qualified Opportunity Zone Business; however, the Direct Approach has no such requirement; and
• the Indirect Approach prohibits the Opportunity Zone Fund from investing in so-called “Sin Businesses;” however, the Direct Approach has no such prohibition.