INDIRECT APPROACH to Opportunity Zone Financing

The Indirect Approach is illustrated in our Indirect Approach Flowchart.

The “Indirect Approach” involves a “Qualified Opportunity Fund” which is:

• a corporation, limited liability company, or partnership organized, which is owned by one or more Eligible Investors;
• self-certified to the IRS (and no application process is required); and
• required to invest in and hold at least 90% of its assets in “Qualified Opportunity Zone Stock” and/or “Qualified Opportunity Zone Partnership Interests” determined by the average of the percentage of such stock or partnership interest held in the fund as measured (a) on the last day of the first 6-month period of the taxable year of the Qualified Opportunity Fund, and (b) on the last day of the taxable year of the Qualified Opportunity Fund.

“Qualified Opportunity Zone Stock“ means any stock in a domestic corporation if (a) such stock is acquired by the Qualified Opportunity Fund after December 31, 2017, at its original issue (directly or through an underwriter) from the corporation solely in exchange for cash; (b) as of the time such stock was issued, such corporation is a “Qualified Opportunity Zone Business;” and (c) during substantially all of the Qualified Opportunity Fund’s holding period for such stock, such corporation qualified as a “Qualified Opportunity Zone Business.”

A “Qualified Opportunity Zone Partnership Interest“ means any capital or profits interest in a domestic partnership if (a) such interest is acquired by the Qualified Opportunity Fund after December 31, 2017, from the partnership solely in exchange for cash; (b) as of the time such interest was acquired, such partnership is a “Qualified Opportunity Zone Business;” and (c) during” substantially all” of the Qualified Opportunity Fund’s holding period for such interest, such partnership qualified as a Qualified Opportunity Zone Business.

A “Qualified Opportunity Zone Business” includes any a trade or business:

• in which substantially all of the tangible property owned or leased by the taxpayer is Qualified Opportunity Zone Business Property if (a) such property was acquired by the Qualified Opportunity Zone Business by purchase; (b) the original use of such property in the Qualified Opportunity Zone commences with the Qualified Opportunity Zone Business or the Qualified Opportunity Zone Business “substantially improves” the property; and (c) during substantially all of the Qualified Opportunity Zone Business’s holding period for such property, substantially all of the use of such property was in a Qualified Opportunity Zone;
• at least 50% of the total gross income of such entity is derived from the active conduct of such business;
• a substantial portion of the intangible property of such entity is used in the active conduct of any such business;
• less than 5% of the average of the aggregate unadjusted bases in the property of such entity is attributable to “nonqualified financial property” (such as cash or cash equivalents, debt, stock, and partnership interests, but not including reasonable working capital and construction reserves); and
• does not include (including land for) any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facility used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises (which are known as the so-called “Sin Businesses”).