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IRS Second Set of Proposed Regulations: Investing In Qualified Opportunity Funds, April 2019

Published on April 17, 2019

April 17, 2019, the Treasury Department released its second set of proposed regulations providing guidance on the Opportunity Zone (OZ) provisions of the Internal Revenue Service Code section 1400Z-2. The second set of proposed regulations address gains that may be deferred as a result of a taxpayer’s investment in a qualified opportunity fund (QOF), as well as special rules for an investment in a QOF helf by a taxpayer for at least 10 years.

Additionally, the proposed regulations contain updated portions of previously proposed regulations under section 1400Z-2 to address various issues, including: the definition of “substantially all” in each of the various places it appears in section 1400Z2; the transactions that may trigger the inclusion of gain that a taxpayer has elected to defer under section 1400Z-2; the timing and amount of the deferred gain that is included; the treatment of leased property used by a qualified opportunity zone business; the use of qualified opportunity zone business property in the qualified opportunity zone; the sourcing of gross income to the qualified opportunity zone business; and the “reasonable period” for a QOF to reinvest proceeds from the sale of qualifying assets without paying a penalty. These proposed regulations will affect QOFs and taxpayers that invest in QOFs.

Treasury will accept comments on the proposed regulations for 60 days, and topics will be discussed at the public hearing scheduled for July 9, 2019.

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