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Abstract: 

The long-awaited final regulations under Section 1400Z address uncertainties concerning the tax consequences of exit strategies from qualified opportunity fund (QOF) partnerships. Although the statute contemplates only gain exclusion on sale of a 10-year qualified interest, the final regulations also exempt gain on asset sales (except ordinary course inventory sales) by QOF partnerships and lower-tier entities. By adapting the technical partnership rules to create nearly complete parity between interest and asset sales, the final regulations remedy statutory flaws and may incentivize the formation of multi-asset funds. The final regulations also clarify the gross value of an encumbered QOF partnership interest and override the general rules concerning recapture of debt-financed depreciation. The Treasury’s solution for the perceived exit problem reflects extensive lobbying by stakeholders, and the overall effect is to provide an unparalleled tax bonanza for wealthy investors and developers.

Keywords: IRC Sec. 1400Z, Opportunity Zone, partnerships, sale of interests or assets, debt-financed distributions, IRC Sec. 743 adjustments, IRC Sec. 752 liabilities

Affiliations:  1: University of Florida, Levin College of Law.