Service 02 · Through the hold
QOF & QOZB compliance testing, every period, every year
OZ compliance isn’t a one-time exercise. We monitor the fund and business tests through the life of the project, so issues surface while there’s still time to correct them.
Why it matters
The risks arrive after closing
Sponsors put enormous effort into finding sites, raising capital and executing business plans. But some of the most significant risks emerge years later, inside the ongoing obligations that govern the program.
Testing failures can carry penalties and, at worst, threaten the benefits investors are counting on. Early detection is usually the difference between a course correction and a costly problem.
What we do
Scope of work
Every engagement is scoped to the project. These are the areas we typically cover.
Periodic testing
Running the fund-level and business-level tests on schedule, with workpapers that show how each conclusion was reached.
Continuous monitoring
Tracking the asset, income and deployment data that drive the tests between testing dates, not just on them.
Early-warning reporting
Flagging trends that could cause a future test to fail, with options for your advisors to consider.
Change management
Reviewing acquisitions, dispositions, leases, refinancings and other events for their compliance impact before they happen.
Records and evidence
Maintaining an organized, audit-ready compliance file for the life of the investment.
Alongside your advisors
Working with counsel, not in place of it
Your CPA and counsel make the tax and legal calls. We keep the data, the testing and the records in order, so those calls are made on solid ground.
Questions
Common questions
- When is the QOF 90% asset test measured?
- Twice a year: on the last day of the first six-month period of the fund’s taxable year and on the last day of the taxable year. The average of the two determines whether the fund held at least 90% of its assets in qualified opportunity zone property (26 U.S.C. § 1400Z-2(d)(1)).
- What tests must a qualified opportunity zone business meet?
- Substantially all (at least 70%) of its tangible property must be qualified opportunity zone business property; at least 50% of its gross income must come from the active conduct of business in the zone; a substantial portion (at least 40%) of its intangible property must be used in that business; less than 5% of its property may be nonqualified financial property, subject to the working-capital safe harbor; and it may not be an excluded business (26 U.S.C. §§ 1400Z-2(d)(3), 1397C).
- What happens if a fund fails the 90% asset test?
- The fund owes a penalty for each month it fails, based on the shortfall and the IRS underpayment rate, unless the failure is due to reasonable cause (26 U.S.C. § 1400Z-2(f)). Monitoring between testing dates is the best way to catch and correct a shortfall before it is measured.
General information, not legal or tax advice.
Further reading
Other services
- 01Structure & FormationDesigning the fund and business structure so the project can pass its tests for the full hold.
- 03ReportingOrganizing the information behind required filings and keeping investors informed with clear, consistent reporting.
- 04Exit & LifecycleKeeping the project on track for its hold-period milestones and preparing for a well-documented exit.
Talk to us before the structure is set.
Whether you’re forming a new fund or bringing an existing project into compliance, we’ll tell you plainly where you stand.