Opportunity Zone (Qualified Opportunity Fund) Compliance Kit

OPPORTUNITY ZONE (QUALIFIED OPPORTUNITY FUND) COMPLIANCE KIT

Prepared for: [________________________________]
Fund Name: [________________________________]
Fund EIN: [________________________________]
Fund Manager / GP: [________________________________]
Tax Counsel: [________________________________]
Date of Fund Formation: [__/__/____]
Date of QOF Self-Certification: [__/__/____]
Taxable Year-End: [________________________________]

TABLE OF CONTENTS

1. Executive Summary and Program Overview
2. Fund Formation and Self-Certification
3. Eligible Gain and Investor Intake Procedures
4. Capital Gains Deferral, Step-Up, and Exclusion Mechanics
5. The 90% Asset Test and Semi-Annual Testing
6. Qualified Opportunity Zone Property Requirements
7. Qualified Opportunity Zone Business (QOZB) Requirements
8. Substantial Improvement Test
9. Working Capital Safe Harbor (31-Month Rule)
10. Sin Business Exclusions
11. Inclusion Events and the December 31, 2026 Deadline
12. Penalty for Failing the 90% Test
13. IRS Reporting and Filing Requirements
14. Investor Reporting Requirements
15. Compliance Calendar and Checklists
16. Fund Formation Checklist
17. Ongoing Compliance Monitoring Worksheet
18. Investor Certification and Representation Letter
19. Working Capital Safe Harbor Written Plan
20. Sources and References

1. EXECUTIVE SUMMARY AND PROGRAM OVERVIEW

Background

The Qualified Opportunity Zone (QOZ) program was enacted as part of the Tax Cuts and Jobs Act of 2017 (IRC Section 1400Z-2) to encourage long-term investment in economically distressed communities. The program provides federal tax incentives to taxpayers who invest eligible capital gains into Qualified Opportunity Funds (QOFs), which in turn deploy capital into designated census tracts.

Core Tax Benefits

The Opportunity Zone program offers three principal tax incentives:

IMPORTANT NOTE: The 5-year and 7-year basis step-up provisions effectively expired for new investments after December 31, 2019 (for 7-year) and December 31, 2021 (for 5-year), as the mandatory recognition date of December 31, 2026 makes it impossible to achieve the required holding period. However, the 10-year permanent exclusion of post-acquisition gain remains available for investments held through 2027 and beyond.

Designated Opportunity Zones

Opportunity Zones are census tracts nominated by state governors and certified by the U.S. Department of the Treasury. The original designations under the 2017 law remain in effect through December 31, 2026. Taxpayers must verify that investment property is located in a currently designated QOZ tract using the IRS mapping tool or the CDFI Fund QOZ list.

2. FUND FORMATION AND SELF-CERTIFICATION

Eligible Entity Structures

A Qualified Opportunity Fund must be organized as one of the following:

☐ Corporation (C-Corp or S-Corp)
☐ Partnership
☐ LLC taxed as a partnership
☐ LLC taxed as a corporation

Note: A disregarded entity (single-member LLC) cannot be a QOF. The entity must be treated as a partnership or corporation for federal income tax purposes.

Formation Requirements

The QOF must be:

☐ Organized under the laws of a U.S. state, the District of Columbia, a U.S. territory, or a federally recognized Indian tribal government
☐ Organized for the purpose of investing in Qualified Opportunity Zone property
☐ An entity that files a federal income tax return as a partnership or corporation

Self-Certification Process

There is no application or approval process. A QOF self-certifies by:

☐ Filing IRS Form 8996 (Qualified Opportunity Fund) with its timely filed federal income tax return (including extensions) for the first taxable year the entity wishes to be treated as a QOF
☐ Designating the month and year of QOF formation on Form 8996, Line 4

Formation Documentation Checklist

☐ Articles of Organization / Certificate of Formation filed with Secretary of State
☐ Operating Agreement (LLC) or Partnership Agreement executed
☐ EIN obtained from the IRS (Form SS-4)
☐ QOF purpose stated in governing documents
☐ Private Placement Memorandum (PPM) prepared (if applicable)
☐ Subscription Agreement template prepared
☐ Investor questionnaire / accredited investor verification prepared
☐ Qualified tax counsel engaged for compliance oversight
☐ Fund administrator / accounting firm engaged
☐ Bank account opened in fund name
☐ OZ tract verification completed (CDFI Fund or IRS mapping tool)

3. ELIGIBLE GAIN AND INVESTOR INTAKE PROCEDURES

Eligible Gains for Deferral

An investor may defer recognition of the following types of gains by timely investing in a QOF:

180-Day Investment Window

The investor must invest eligible capital gains into a QOF within 180 days of the date on which the gain would be recognized for federal income tax purposes.

Starting date for the 180-day period:

Investor Intake Checklist

For each investor admitted to the QOF:

☐ Investor Subscription Agreement fully executed
☐ Investor Certification and Representation Letter signed (see Section 18)
☐ Source of eligible gain documented (Form 8949 or equivalent)
☐ Date of gain recognition event documented: [__/__/____]
☐ 180-day deadline calculated and recorded: [__/__/____]
☐ Amount of eligible gain: $[________________________________]
☐ Amount invested in QOF: $[________________________________]
☐ Investor notified of Form 8997 annual filing obligation
☐ Investor's tax counsel or CPA contact information on file
☐ Accredited investor verification completed (if applicable)
☐ Anti-money laundering (AML) / Know Your Customer (KYC) checks completed
☐ Capital contribution received and deposited into QOF bank account

4. CAPITAL GAINS DEFERRAL, STEP-UP, AND EXCLUSION MECHANICS

Deferral Election

The investor elects deferral on IRS Form 8949 (Sales and Other Dispositions of Capital Assets) for the taxable year in which the gain would otherwise be recognized. The investor reports the gain and the deferral by:

1. Reporting the eligible gain on Form 8949 with code "Z" in column (f)
2. Entering the deferred gain as a negative adjustment in column (g)
3. Filing Form 8997 to report the QOF investment

Basis Mechanics

Upon making a deferral election:

Example: 10-Year Exclusion

Critical: Only the amount of eligible gain invested receives deferral treatment. If an investor contributes additional non-gain capital, that portion does not qualify for deferral or the 10-year exclusion.

5. THE 90% ASSET TEST AND SEMI-ANNUAL TESTING

The Standard

A QOF must hold at least 90% of its assets in Qualified Opportunity Zone property. This is measured as the average of the qualifying asset percentage on two semi-annual testing dates.

Treas. Reg. § 1.1400Z2(d)-1(a)(2)

Testing Dates

For a calendar-year QOF:

• First testing date: June 30
• Second testing date: December 31

Computation

90% Test = (Percentage on Test Date 1 + Percentage on Test Date 2) / 2

Where each percentage = (Total QOZ Property) / (Total Assets) x 100

The QOF passes if the average equals or exceeds 90.00%.

First-Year Grace Period

For the QOF's first taxable year, if the QOF was formed mid-year, the first 6-month testing date uses only the period from the month of self-certification through the end of the first 6-month period. If the entity self-certifies after the first 6-month period has elapsed, only the year-end test applies (the result is not averaged with zero).

What Counts as QOZ Property

For purposes of the 90% test, QOZ property includes:

90% Asset Test Worksheet

Testing Date: [__/__/____]

First Semi-Annual Test Percentage: [____]%
Second Semi-Annual Test Percentage: [____]%
Average (must be >= 90%): [____]%

☐ PASS (average >= 90%)
☐ FAIL (average < 90% -- see Section 12 for penalty calculation)

6. QUALIFIED OPPORTUNITY ZONE PROPERTY REQUIREMENTS

Three Categories of QOZ Property

A. QOZ Stock

☐ Acquired after December 31, 2017
☐ Acquired solely in exchange for cash
☐ Domestic corporation
☐ Corporation was a QOZB at time of issuance
☐ Corporation remained a QOZB during substantially all of the QOF's holding period

B. QOZ Partnership Interest

☐ Acquired after December 31, 2017
☐ Acquired solely in exchange for cash
☐ Domestic partnership
☐ Partnership was a QOZB at time of acquisition
☐ Partnership remained a QOZB during substantially all of the QOF's holding period

C. QOZ Business Property (Tangible Property Held Directly by QOF)

☐ Tangible property (real or personal)
☐ Acquired by purchase after December 31, 2017
☐ Not purchased from a related party (20% ownership threshold under IRC §§ 267(b) and 707(b)(1), modified to 20%)
☐ Original use of the property in the QOZ commences with the QOF, OR the property is substantially improved (see Section 8)
☐ During substantially all (70%) of the QOF's holding period, substantially all (70%) of the use of the property was in a QOZ

"Substantially All" Means 70%: The Treasury Regulations define "substantially all" as 70% for purposes of the tangible property use and holding period tests. This means at least 70% of the use of the tangible property must be within a QOZ during at least 70% of the time the QOF holds the property.

7. QUALIFIED OPPORTUNITY ZONE BUSINESS (QOZB) REQUIREMENTS

When a QOF invests in a lower-tier entity (rather than holding tangible property directly), that entity must qualify as a QOZB. The QOZB must satisfy ALL of the following requirements each taxable year:

A. 70% Tangible Property Test

☐ Substantially all (at least 70%) of the tangible property owned or leased by the QOZB is QOZ Business Property
☐ Each piece of QOZBP meets the acquisition, original use or substantial improvement, and QOZ use requirements

B. 50% Gross Income Test

☐ At least 50% of the QOZB's total gross income is derived from the active conduct of a trade or business within the QOZ

Safe Harbors for the 50% Gross Income Test (satisfy any one):

☐ Hours-Based Test: At least 50% of the aggregate hours of services received by the business from employees and independent contractors are performed within the QOZ

☐ Compensation-Based Test: At least 50% of the aggregate amounts paid by the business for services (both employee and contractor) are for services performed within the QOZ

☐ Tangible Property + Management Functions Test: The tangible property of the business located in the QOZ and the management or operational functions performed in the QOZ are each necessary to generate at least 50% of the gross income of the business

C. Less Than 5% Nonqualified Financial Property

☐ Less than 5% of the average aggregate unadjusted bases of the QOZB's property is attributable to nonqualified financial property (NQFP)

Nonqualified financial property includes:

• Debt, stock, partnership interests, options, futures, forward contracts
• Annuities and similar financial instruments
• Exception: Reasonable amounts of working capital held in cash, cash equivalents, or short-term debt instruments (see Working Capital Safe Harbor, Section 9)

D. 40% Intangible Property Test

☐ At least 40% of the QOZB's intangible property is used in the active conduct of a trade or business in the QOZ

E. No Sin Business Operations

☐ The QOZB does not operate a prohibited "sin business" (see Section 10)

F. Trade or Business Requirement

☐ The QOZB operates an active trade or business (not merely holding property for investment without an active business purpose)

Note: A triple-net-leased property may not constitute a trade or business. The IRS has taken the position that operating real property with meaningful management involvement (e.g., active management of tenants, property maintenance, capital improvements) satisfies the trade or business requirement.

8. SUBSTANTIAL IMPROVEMENT TEST

When the Test Applies

If tangible property is not "originally used" in the QOZ by the QOF or QOZB (i.e., the property was previously in service in the QOZ), the QOF or QOZB must substantially improve the property to treat it as QOZ Business Property.

The Standard

The QOF or QOZB must make additions to the basis of the property during any 30-month period beginning after the date of acquisition that exceed the adjusted basis of the property at the beginning of that 30-month period.

In plain terms: The QOF must invest more in improvements than what it paid for the property (doubling the basis) within 30 months of acquisition.

Important Rules

Land Exclusion: The substantial improvement test applies only to buildings and improvements, not to the underlying land. The cost of land is excluded from both the acquisition basis and the improvement threshold.

Treas. Reg. § 1.1400Z2(d)-1(c)(8)(i): For purposes of measuring substantial improvement, the adjusted basis of the building (excluding land) at the time of acquisition is the benchmark.

Substantial Improvement Tracking Worksheet

Property Address: [________________________________]
QOZ Tract Number: [________________________________]
Date of Acquisition: [__/__/____]
30-Month Deadline: [__/__/____]

Improvement Expenditure Log:

Total Improvements to Date: $[________________________________]
Remaining to Reach Threshold: $[________________________________]
Days Remaining in 30-Month Period: [________________________________]

☐ Substantial improvement threshold MET
☐ Substantial improvement threshold NOT YET MET -- additional improvements required by [__/__/____]

9. WORKING CAPITAL SAFE HARBOR (31-MONTH RULE)

Purpose

The working capital safe harbor allows a QOZB to hold cash, cash equivalents, and short-term debt instruments without those amounts being treated as nonqualified financial property -- provided specific requirements are met.

Treas. Reg. § 1.1400Z2(d)-1(d)(3)(v)

Three Requirements

The QOZB must satisfy ALL three requirements:

Requirement 1: Written Plan

☐ The QOZB has a written plan identifying the financial property as held for the acquisition, construction, and/or substantial improvement of tangible property in the QOZ

Requirement 2: Written Schedule

☐ The written plan includes a schedule consistent with the ordinary course of business showing that the working capital will be spent within 31 months of receipt

Requirement 3: Property Is Consumed on Schedule

☐ The working capital is actually consumed substantially in accordance with the written schedule

Extension: Up to 62 Months

The regulations permit the working capital safe harbor to be applied twice in succession for a total period of up to 62 months, provided each 31-month period independently satisfies all three requirements.

COVID-19 Extension

IRS Notice 2021-10 extended the 31-month working capital safe harbor by an additional 24 months for working capital safe harbor periods that include January 20, 2020 through September 11, 2021.

Working Capital Safe Harbor Plan Template

See Section 19 for a complete written plan template.

10. SIN BUSINESS EXCLUSIONS

Prohibited Businesses

Under IRC § 144(c)(6)(B) (as referenced by IRC § 1400Z-2(d)(3)(A)(iii)), a QOZB may not operate any of the following:

De Minimis Exception

A QOZB will not be disqualified solely because it derives a de minimis amount (less than 5% of gross income) from a sin business activity. For example, a hotel with a spa offering massage services is not automatically excluded, provided the massage income is less than 5% of total gross income.

Leasing Restriction

The Final Regulations prohibit a QOZB from leasing more than a de minimis amount of its property to a sin business operator.

QOF-Level Exception

Important: The sin business prohibition applies at the QOZB level, not at the QOF level. A QOF that directly operates a sin business is not technically prohibited, though this structure is unusual and requires careful tax counsel review.

Sin Business Screening Checklist

☐ Business type reviewed against IRC § 144(c)(6)(B) excluded list
☐ Tenant uses reviewed for potential sin business operations
☐ Lease agreements reviewed for sin business restrictions
☐ Gross income from any potentially excluded activity quantified (must be < 5%)
☐ Confirmation that no more than de minimis property is leased to sin business operators

11. INCLUSION EVENTS AND THE DECEMBER 31, 2026 DEADLINE

What Is an Inclusion Event?

An inclusion event is any event that reduces or terminates a taxpayer's qualifying investment in a QOF, triggering recognition of all or a portion of the deferred gain.

Common Inclusion Events

The December 31, 2026 Mandatory Recognition Date

IRC § 1400Z-2(b)(1)(B): All deferred gains that have not been previously recognized must be included in income on the earlier of:

• An inclusion event, OR
• December 31, 2026

Planning Note: Investors should plan for the tax liability arising from mandatory gain recognition on December 31, 2026. The deferred gain is recognized in the 2026 tax year, with payment due by the 2026 return filing deadline (typically April 15, 2027, or October 15, 2027 with extension).

Re-Deferral Option

If an investor recognizes deferred gain due to an inclusion event before December 31, 2026, the investor may re-defer that gain by investing the recognized amount into a new QOF within 180 days.

Inclusion Event Tracking Log

12. PENALTY FOR FAILING THE 90% TEST

Penalty Calculation

If a QOF fails to meet the 90% asset test, a monthly penalty is assessed under IRC § 1400Z-2(f).

Formula (for each month of non-compliance):

Monthly Penalty = (90% of Total Assets - Actual QOZ Property Held) x (Underpayment Rate / 12)

Where:

• 90% of Total Assets = the amount the QOF should have held in QOZ property
• Actual QOZ Property Held = the amount actually held
• Underpayment Rate = the applicable federal short-term rate + 3 percentage points (IRC § 6621), published quarterly by the IRS

Penalty Worksheet

Month: [________________________________]

Reasonable Cause Exception

☐ The QOF may avoid the penalty if it demonstrates reasonable cause for the failure to meet the 90% test
☐ Document all facts and circumstances supporting reasonable cause
☐ Reasonable cause arguments should be prepared with tax counsel

Penalty Reporting

The penalty is reported on Form 8996, Part III and is:

• Paid by the QOF (if a corporation), or
• Allocated to partners as part of their distributive share (if the QOF is a partnership) -- note that even partners who did not invest eligible gain bear their share of the penalty

13. IRS REPORTING AND FILING REQUIREMENTS

QOF-Level Filings

Investor-Level Filings

14. INVESTOR REPORTING REQUIREMENTS

Annual Obligations for QOF Investors

Each investor who holds a qualifying investment in a QOF at any point during the taxable year must:

☐ File Form 8997 with their timely filed federal income tax return (including extensions)
☐ Report the following on Form 8997:

• Part I: QOF investments held at the beginning of the tax year
• Part II: QOF investments acquired during the tax year
• Part III: QOF investments disposed of during the tax year
• Part IV: QOF investments held at the end of the tax year

Initial Year Requirements

In the year the deferral election is made:

☐ File Form 8949 with code "Z" in column (f) to report the eligible gain and deferral
☐ Enter the amount of deferred gain as a negative adjustment in column (g) of Form 8949
☐ Report on Schedule D
☐ File Form 8997 to report the initial QOF investment

Gain Recognition Year (2026 or Earlier Inclusion Event)

☐ File Form 8949 to report the deferred gain recognized
☐ Update Form 8997 to reflect the disposition or inclusion event
☐ Report on Schedule D
☐ If electing the 10-year basis step-up to FMV (for investments held 10+ years), make the election on the tax return for the year of sale

QOF Reporting to Investors

The QOF should provide to each investor annually:

☐ Schedule K-1 (if partnership) with any penalty amounts allocated
☐ Confirmation of QOF status (pass/fail of 90% test)
☐ Investor capital account statement
☐ Notice of any inclusion events
☐ Information needed for investor's Form 8997 filing

15. COMPLIANCE CALENDAR AND CHECKLISTS

Annual Compliance Calendar (Calendar-Year QOF)

Quarterly Compliance Review Checklist

Quarter Ending: [__/__/____]

☐ Verify all QOZ property is still located within designated QOZ tracts
☐ Review QOZB gross income test (50% from QOZ activities)
☐ Review QOZB tangible property test (70% QOZBP)
☐ Review nonqualified financial property (< 5% test)
☐ Review intangible property test (40% QOZ use)
☐ Track substantial improvement expenditures against 30-month deadlines
☐ Monitor working capital safe harbor schedule compliance
☐ Review any new investor subscriptions for 180-day compliance
☐ Review any investor dispositions or potential inclusion events
☐ Update asset inventory and valuations for next 90% test
☐ Document any changes in property use or tenant occupancy
☐ Confirm no sin business activities or tenants

16. FUND FORMATION CHECKLIST

Pre-Formation

☐ Identify target QOZ tract(s) and verify designation status
☐ Confirm investment thesis aligns with QOZ program requirements
☐ Engage qualified tax counsel with OZ experience
☐ Engage CPA / fund administrator
☐ Determine entity structure (partnership vs. corporation; single-asset vs. multi-asset)
☐ Determine whether QOF will hold property directly or invest through lower-tier QOZB entities
☐ Prepare financial projections including 90% test compliance modeling
☐ Screen target business / property against sin business exclusions
☐ Assess substantial improvement requirements for existing structures

Entity Formation

☐ Draft and file Articles of Organization / Certificate of Formation
☐ Obtain EIN (Form SS-4)
☐ Draft Operating Agreement / Partnership Agreement with QOF-specific provisions:

• Statement of QOF purpose
• Capital contribution requirements tied to 180-day window
• Distribution restrictions to avoid premature inclusion events
• Information reporting obligations
• Manager compliance covenants
• Sin business prohibitions
• Remediation provisions for 90% test failures
  ☐ Open QOF bank account(s)
  ☐ Prepare Private Placement Memorandum (PPM) with QOZ-specific risk disclosures

Self-Certification

☐ Prepare Form 8996 for attachment to first-year tax return
☐ Designate month and year of QOF formation on Form 8996, Line 4
☐ File Form 8996 with timely filed partnership or corporate return (including extensions)

Capital Deployment

☐ Develop written deployment timeline for invested capital
☐ If applicable, prepare Working Capital Safe Harbor written plan (Section 19)
☐ Monitor deployment against 90% test dates
☐ Document all property acquisitions with QOZ tract verification
☐ For existing structures, obtain appraisals separating land from building values (for substantial improvement test)

17. ONGOING COMPLIANCE MONITORING WORKSHEET

Semi-Annual 90% Test Record

Tax Year: [________________________________]

Test Date 1: [__/__/____]

Test Date 2: [__/__/____]

Average of Two Tests: [____]%
Result: ☐ Pass ☐ Fail

QOZB Compliance Tracker (for each lower-tier QOZB)

QOZB Name: [________________________________]
QOZB EIN: [________________________________]
Tax Year: [________________________________]

18. INVESTOR CERTIFICATION AND REPRESENTATION LETTER

[QOF LETTERHEAD]

Date: [__/__/____]

To: [________________________________] ("Fund" or "QOF")
From: [________________________________] ("Investor")

Re: Investor Certification for Qualified Opportunity Fund Investment

The undersigned Investor hereby certifies, represents, and warrants as follows in connection with the Investor's subscription to acquire an interest in the Fund:

1. Eligible Gain Certification

I certify that the capital gain I am investing in the Fund is an "eligible gain" within the meaning of IRC § 1400Z-2(e)(1), specifically:

☐ The gain arose from a sale or exchange with a person who is not related to me within the meaning of IRC §§ 267(b) and 707(b)(1) (as modified)

☐ The gain would be recognized for federal income tax purposes before January 1, 2027

☐ The gain is a:
☐ Short-term capital gain
☐ Long-term capital gain
☐ IRC § 1231 gain (net)
☐ Other: [________________________________]

2. Investment Details

3. Representations

☐ I understand that I must file IRS Form 8949 to elect deferral of the eligible gain for the taxable year in which the gain would otherwise be recognized

☐ I understand that I must file IRS Form 8997 annually for each year I hold a qualifying investment in the Fund

☐ I understand that deferred gain will be recognized no later than December 31, 2026, and that I am responsible for the resulting tax liability

☐ I understand that the 10-year basis step-up to FMV requires holding the QOF investment for at least 10 years and applies only to post-acquisition appreciation

☐ I acknowledge that an inclusion event (as defined in Treas. Reg. § 1.1400Z2(b)-1) will trigger recognition of deferred gain

☐ I have consulted with, or have had the opportunity to consult with, my own tax advisor regarding the tax consequences of this investment

☐ I acknowledge that the Fund's compliance with QOF requirements is not guaranteed, and that failure of the Fund to meet the 90% asset test may result in penalties allocated to me as a partner

4. Ongoing Obligations

☐ I agree to promptly notify the Fund of any transfer, disposition, gift, or other inclusion event affecting my QOF interest

☐ I agree to provide any information reasonably requested by the Fund for purposes of QOF compliance and reporting

Investor Signature: ___________________________________________

Investor Printed Name: [________________________________]

Date: [__/__/____]

Investor SSN/EIN (last 4): XXX-XX-[____]

Investor Address:
[________________________________]
[________________________________]
[________________________________]

19. WORKING CAPITAL SAFE HARBOR WRITTEN PLAN

WORKING CAPITAL SAFE HARBOR PLAN

Pursuant to Treas. Reg. § 1.1400Z2(d)-1(d)(3)(v)

QOZB Name: [________________________________]
QOZB EIN: [________________________________]
Date of Plan Adoption: [__/__/____]
Date Working Capital Received: [__/__/____]
31-Month Deadline: [__/__/____]

1. Identification of Working Capital Assets

The following financial property is designated as working capital held pursuant to this Safe Harbor Plan:

Total Working Capital Subject to This Plan: $[________________________________]

2. Intended Use

The working capital identified above is held for the following purposes related to the acquisition, construction, and/or substantial improvement of tangible property in a Qualified Opportunity Zone:

☐ Acquisition of real property located at: [________________________________]
☐ Construction of improvements, specifically: [________________________________]
☐ Substantial improvement of existing structures at: [________________________________]
☐ Other tangible property acquisition: [________________________________]

3. Expenditure Schedule

The working capital will be expended in accordance with the following schedule:

Total Planned Expenditures: $[________________________________]

4. QOZ Location Confirmation

☐ All tangible property to be acquired, constructed, or improved is located within a designated Qualified Opportunity Zone
☐ QOZ Tract Number(s): [________________________________]

5. Compliance Monitoring

☐ The QOZB will track actual expenditures against this schedule on at least a [monthly / quarterly] basis
☐ Any material deviation from this schedule will be documented with an explanation
☐ If the working capital is not substantially consumed within 31 months, the QOZB will [________________________________]

6. Certification

The undersigned, as an authorized representative of the QOZB, certifies that this written plan was adopted on or before the date the working capital was received, that the schedule set forth above is consistent with the ordinary course of business for projects of this type, and that the QOZB intends to expend the working capital substantially in accordance with this plan within 31 months of receipt.

Authorized Representative Signature: ___________________________________________

Printed Name: [________________________________]

Title: [________________________________]

Date: [__/__/____]

20. SOURCES AND REFERENCES

Statutes

• IRC § 1400Z-1: Designation of Qualified Opportunity Zones
• IRC § 1400Z-2: Special Rules for Capital Gains Invested in Opportunity Zones
• IRC § 144(c)(6)(B): Excluded / Sin Business Activities
• Tax Cuts and Jobs Act of 2017, Pub. L. No. 115-97, § 13823

Treasury Regulations

• Treas. Reg. § 1.1400Z2(a)-1: Deferring Tax on Capital Gains by Investing in Opportunity Zones
• Treas. Reg. § 1.1400Z2(b)-1: Inclusion of Deferred QOZ Gains
• Treas. Reg. § 1.1400Z2(c)-1: Investments Held for at Least 10 Years
• Treas. Reg. § 1.1400Z2(d)-1: Qualified Opportunity Funds and QOZ Businesses
• Treas. Reg. § 1.1400Z2(f)-1: QOF Penalties

IRS Forms and Instructions

• Form 8996: Qualified Opportunity Fund
• Instructions for Form 8996
• Form 8997: Initial and Annual Statement of QOF Investments
• Form 8949: Sales and Other Dispositions of Capital Assets

IRS Guidance

• IRS Opportunity Zones Resource Page
• IRS Opportunity Zones FAQ
• Invest in a Qualified Opportunity Fund
• Certify and Maintain a Qualified Opportunity Fund
• IRS Notice 2021-10 (COVID-19 Working Capital Safe Harbor Extension)

Additional Resources

• CDFI Fund Opportunity Zone Mapping Tool
• Economic Innovation Group (EIG) Opportunity Zones Resources

APPENDIX A: KEY DEFINITIONS

APPENDIX B: COMMON COMPLIANCE PITFALLS

Fund-Level Pitfalls

☐ Failure to timely file Form 8996 -- Self-certification is only effective if Form 8996 is filed with a timely return (including extensions). A late-filed return without reasonable cause may invalidate QOF status.

☐ Holding excess cash on testing dates -- Cash is not QOZ property. Significant uninvested cash on June 30 or December 31 can cause a 90% test failure. Plan capital calls and deployments around testing dates.

☐ Accepting non-eligible gains -- If the QOF accepts capital that is not eligible gain (e.g., ordinary income, qualified dividends, related-party gain), those amounts do not qualify for deferral. Mixed-capital funds require careful tracking.

☐ Inadequate documentation of QOZ tract location -- Always obtain and retain written verification that each property is located within a designated QOZ tract, using the CDFI Fund mapping tool or equivalent.

☐ Failing to monitor QOZB compliance -- The QOF is responsible for ensuring lower-tier QOZBs satisfy all requirements. Regular compliance reviews are essential.

Property-Level Pitfalls

☐ Misallocating land vs. building value for substantial improvement -- An inflated land allocation reduces the building basis and lowers the improvement threshold, but an unreasonable allocation may be challenged by the IRS. Obtain a qualified appraisal.

☐ Missing the 30-month substantial improvement deadline -- Once the 30-month window closes, the property permanently fails the substantial improvement test. Track deadlines carefully.

☐ Leasing property to sin businesses -- Even a single tenant operating a prohibited business (beyond de minimis) can disqualify the QOZB.

☐ Purchasing property from related parties -- QOZ business property cannot be acquired from a related party (20% threshold). Verify all seller relationships.

Investor-Level Pitfalls

☐ Missing the 180-day investment window -- Late investments do not qualify for deferral. Calendar the deadline immediately upon the gain recognition event.

☐ Failing to file Form 8949 with deferral election -- The deferral election is made on Form 8949 (code "Z"). Failure to properly elect results in gain recognition.

☐ Failing to file Form 8997 annually -- Annual filing is mandatory for any year the investor holds a QOF investment.

☐ Inadvertent inclusion events -- Distributions in excess of basis, gifts of QOF interests, or contributing QOF interests to other entities may trigger unintended gain recognition.

☐ Failing to plan for 2026 mandatory recognition -- All deferred gain is recognized on December 31, 2026. Investors must plan for the resulting tax liability.

This Compliance Kit is provided by ezel.ai for informational purposes only. It does not constitute legal or tax advice. Opportunity Zone investments involve complex federal tax rules that require individualized analysis. Always consult qualified tax counsel and a CPA before forming or investing in a Qualified Opportunity Fund.

Last Updated: March 16, 2026