Avoiding Disguised Sales in Qualified Opportunity Funds: Critical Tax Considerations for QOF Investments

The current tax law provides tax incentives for investments in areas designated as qualified opportunity zones (QOZ), allowing investors in QOFs to defer and partly eliminate the tax on capital gains invested in the QOF and eliminate the tax on appreciation in the QOF investment. Recent IRS regulations and the application of disguised sale rules to these investments require an in-depth knowledge of key tax provisions to obtain and preserve tax benefits of the QOF investment.

An investor is eligible for QOZ benefits if, within 180 days after recognizing capital gain from the sale of a property to an unrelated person, the investor invests an amount equal to all or part of that capital gain in a QOF. Under recent IRS proposed regulations, a QOF investor obtains these benefits if the interest is acquired from a direct owner of the QOF or contributes property other than cash to a QOF.

For QOFs set up as partnerships, new IRS proposed regulations apply complex rules for disguised sales to leveraged distributions to QOF partners. The application of these rules can disqualify all or a portion of a partner's QOF investment. Tax counsel and advisers must understand the nuances of applying disguised sale rules to QOF investments to ensure that a QOF investor maintains the tax benefits allowed under current tax law.

Listen as our panel discusses key tax considerations for making and holding investments in QOFs, the application of disguised sale rules, partnership assumptions of liabilities, debt-financed distributions, and other related topics.

1. Overview of QOZ program
2. Application of disguised sale rules to QOF investments
   • Allocation of partnership liabilities
   • Debt financed distributions
3. Application of disguised sale rules to QOF investments in QOZBs
4. Secondary acquisitions of QOF interests

The panel will discuss these and other key issues:

• What are the key tax considerations for making a QOF investment?
• What are the key tax considerations for investors holding QOF investments?
• What are the key provisions of recent IRS regulations regarding QOF investments?
• What impact does the application of disguised sale rules have on QOF investments?

Learning Objectives

After completing this course, you will be able to:

• Acquire an in-depth understanding of the tax benefits of investing in QOFs
• Identify key tax issues in making QOF investments and planning methods to avoid them
• Ascertain key steps in qualifying for tax benefits for secondary acquisitions of QOF interests
• Recognize the potential tax consequences of leveraged distributions to QOF partners under Section 707 disguised sale rules

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience at mid-level within the organization, preparing complex tax forms and schedules, supervising other preparers/accountants. Working knowledge and understanding of tax credits, sourcing rules; foundational knowledge of basis calculations and capital gains tax.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).