Opportunity Zone Magazine Volume 1, Issue 3 - Page 85

85 COMMON OZ ISSUES FOR REAL ESTATE VENTURES In order for investors to benefit from the OZ program, QOF and the QOZB they invest into need to comply with the various OZ rules to qualify for the designation as a qualified fund or business. Investors also need to follow certain rules to maintain the benefits of their qualifying investments. These various rules can present challenges for all real estate projects. Further, several asset classes can present their own unique challenges. Below are some common issues that may arise when forming and operating a real estate focused opportunity fund: THE USE OF TRIPLE NET LEASES IN AN OZ PROJECT To qualify as an QOF, the fund needs to deploy the capital it raises into active trades or businesses that operate within OZs. The active conduct of a trade or business is not clearly defined for this purpose. Further, the operation of a rental property qualifying as an active conduct of a trade or business has a long history of litigation between taxpayers and the IRS with conflicting judgements. This makes the active trade or business designation for a rental property heavily dependent on the facts and circumstances of a given venture. However, the OZ regulations make it clear that the ownership and operation of real property (including leasing) will be considered the active conduct of a trade or business for purposes of the OZ program. 1 the OZ regulations make it clear that the ownership and operation of real property will be considered the active conduct of a trade or business for purposes of the OZ program. While this was welcomed guidance, the regulations go on to say that merely entering into a triple net lease with respect to real property owned by an entity is not the active conduct of a trade or business. This can be an issue for asset classes such as office, industrial, or retail that commonly utilize triple net lease arrangements with their tenants. QOF or QOZB should carefully consider the terms in the lease arrangements they are entering into with their tenants to insure that their level of activity will rise to the level of an active trade or business. Higher interest means more cash for your company. Congratulations to Matt Peurach Partner & Chair of MMM’s Opportunity Zone Practice 3.0%APY* Put your idle cash reserves to work APY* 3.0% Primary Objective: No loss of initial capital Fully liquid, SIPC Insured Photo QR code to Start on his recognition as a Treasury Compliance Program available for OZ Funds [email protected] www.FutureSafe.io [phone] Follow us on: APY* 0.10% 2020 Top OZ Professional FDIC National Savings Rate Average Cash Reserve Account www.mmmlaw.com *The stated rate is the average expected interest rate over one year, net of fees (as of October 2019) and is not guaranteed. All funds are held in the client's name in a separately managed securities investment account (not a bank account), and are managed by Optimal Asset Management Atlanta Inc., an • SEC-registered Raleigh-Durham investment • adviser Savannah under the • Invest Washington, Advisers Act DC of 1940. Funds are invested 100% in US Corporate and Treasury Bonds and may be liquidated at any time without penalties or fees OPPORTUNITYZONE.COM