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

Recent IRS Regulations, Application of Section 707, Exceptions, Assumption of Liabilities, Debt Financed Transfer Considerations

Recording of a 90-minute premium CLE/CPE webinar with Q&A

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Conducted on Thursday, January 30, 2020

Recorded event now available

or call 1-800-926-7926

This CLE/CPE course will provide tax professionals an in-depth analysis of qualified opportunity funds (QOFs), specifically focusing on recent IRS regulations and partnership disguised sales. The panel will discuss current IRS regulations on the application of disguised sale rules to investments in QOFs and qualified opportunity zone businesses (QOZBs), debt-financed distributions, and other related topics.

Description

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.

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Outline

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

Benefits

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?

Faculty

Crick, Gene
Gene Crick, Jr.
Partner
Nelson Mullins Riley & Scarborough

Mr. Crick handles income tax isses and transactional legal work with respect to the buying and selling of entities or...  |  Read More

Kershaw, Derek
Derek Kershaw
Counsel
Shearman & Sterling

Mr. Kershaw is counsel in the Tax practice. He advises clients on a range of areas of tax law. His practice includes...  |  Read More

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Strafford will process CLE credit for one person on each recording. CPE credit is not available on recordings. All formats include course handouts.

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