Certify and maintain a Qualified Opportunity Fund

A Qualified Opportunity Fund is an investment vehicle that is organized as a corporation or partnership for the purpose of investing in Qualified Opportunity Zone property (other than another Qualified Opportunity Fund).

To certify and maintain a Qualified Opportunity Fund, an entity must:

• File a federal income tax return as a partnership, corporation, or LLC that is treated as a partnership or corporation;
• Be organized for the purpose of investing in Qualified Opportunity Zone property under the laws in one of the 50 states, the District of Columbia, a U.S. possession, or a federally recognized Indian tribal government; and
• Hold 90% of its assets in Qualified Opportunity Zone property.

Filing requirements

To certify and maintain as a Qualified Opportunity Fund, the entity must annually file Form 8996, Qualified Opportunity Fund with the eligible partnership or corporation federal tax return. You must file Form 8996 by the due date of the tax return (including extensions).

Form 8996 is used to:

• Certify the corporation or partnership is organized to invest in Qualified Opportunity Zone property;
• Report that it meets the 90% investment standard of section 1400Z-2; and
• Figure the penalty if it fails to meet the 90% investment standard.

Meeting the 90% investment standard

A Qualified Opportunity Fund must satisfy the standard of investing 90% of its assets in Qualified Opportunity Zone property. This is determined by the average of the percentage of Qualified Opportunity Zone property held in the Qualified Opportunity Fund as measured on:

• The last day of the first 6-month period of the tax year of the Qualified Opportunity Fund, and
• The last day of the tax year of the Qualified Opportunity Fund.

Reporting disposal of equity interest

You must report all disposal (or disposition) of equity interest, by a partner or shareholder, in a Qualified Opportunity Fund. This includes any disposal of the investment (whether or not it is for consideration), including by gift or inheritance.

To report disposal of equity interest:

• Check 'Yes' on Line 5, Part 1 of Form 8996, Qualified Opportunity Fund and attach a statement with each investor’s name, date of the disposal, and the interest they disposed, and
• Report each disposition on a separate Form 1099-B, Proceeds from Broker and Barter Exchange Transactions.

What is a Qualified Opportunity Zone property?

A Qualified Opportunity Zone property means Qualified Opportunity Zone stock, a Qualified Opportunity Zone partnership interest, and Qualified Opportunity Zone business property. Find detailed definitions for each in instructions for Form 8996.

Any Qualified Opportunity Zone stock or Qualified Opportunity Zone partnership interests used to satisfy the 90% investment standard must be an entity that satisfies section 1400Z-2(d)(3)—that is, that the entity is a Qualified Opportunity Zone business. The Qualified Opportunity Zone business must provide sufficient information to the Qualified Opportunity Fund to show that they meet the requirements, otherwise the Qualified Opportunity Fund may be subject to penalties.

Meeting Qualified Opportunity Zone business property requirements

Tangible property is Qualified Opportunity Zone business property if used in a trade or business and meets the following requirements:

• Timing of acquisition: Property was acquired by purchase after December 31, 2017.
• Asset type – original or improved: Property must be originally used in the Qualified Opportunity Zone or substantially improved. Property is original use on the date first placed in service in the Qualified Opportunity Zone for purposes of depreciation or amortization. Used tangible property satisfies the original use requirement if the property has not been previously placed in service in the qualified opportunity zone.
• Location in a Qualified Opportunity Zone requirements: Property is in a Qualified Opportunity Zone for substantially all the time held.

Income tests

A Qualified Opportunity Zone business must earn at least 50% of its gross income from business activities within a Qualified Opportunity Zone. It must do so for each taxable year. The regulations provide four safe harbors that a business may use to meet this test. These safe harbors are the:

• Hours-of-services-received test.
• Amounts-paid-for-services test.
• Necessary-tangible-property-and-business-functions test.
• Facts and circumstance test.

Frequently asked questions

Forms and instructions

• Form 8996, Qualified Opportunity Fund
• Form 1099-B, Proceeds from Broker and Barter Exchange Transactions

Regulations and guidance

• Opportunity Zones Regulations and Guidance
• Notice 2020-39, Relief for Qualified Opportunity Funds and Investors Affected by Ongoing Coronavirus Disease 2019 Pandemic PDF