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>> YAMALIS: Okay, folks. Our presenters for today's webinar are two of my favorite colleagues here in stakeholder liaison, they're Sherry Saucerman and Richard Furlong. Sherry and Richard are both senior stakeholder liaisons in the communications and liaison division. So there's no time like the present to really get things started. Richard, let me turn it over to you today.

>> FURLONG: Philip, thank you for that very kind introduction, and good day, everyone.

>> YAMALIS: You're welcome.

>> FURLONG: Welcome to our webinar on tax reform basics about Opportunity Zones.

So to get started, let's look at the objectives that Sherry and I will discuss today.

First, we will define this new concept of a Qualified Opportunity Zone.

We'll discuss the very important and unique and new tax benefits of investing in Qualified Opportunity Funds. We will cover the requirements to become a Qualified Opportunity Fund, and we will also define what is meant by Qualified Zone Property. Now, that gives you a sense as we move on to the next slide that there are new terms of which you need to become familiar.

And in this slide and in the two subsequent slides, we're going to put up these terms and their acronyms, because Sherry and I use will use acronyms occasionally in today's webinar. Now no need to memorize these at this time, nor will I go through them in depth, because you were provided an excellent resource document as part of the presentation materials today.

So all of these terms are defined there. So on this slide we have the definition of an Opportunity Zone or OZ, we have the definition of a Qualified Opportunity Fund or QOF. On our next slide we have three new terms.

Qualified Opportunity Zone Property, Qualified Opportunity Zone Stock, and Qualified Opportunity Zone Partnership. And then on our final slide with the new terms, we have two new terms. Qualified Opportunity Zone Business or QOZ Business and Qualified Opportunity Zone Business Property, QOZ Business Property.

So rest assured we will come back to these terms throughout the presentation, but I encourage you to keep that resource document nearby.

Now let me give you a cautionary statement and a caveat as we get underway.

Today's presentation is focused solely on the federal tax implications and the reporting requirements with respect to investments in a Qualified Opportunity Fund or QOF. Please keep in mind that the Internal Revenue Service does not endorse any specific Qualified Opportunity Fund nor do we give tax advice. And very important for investors making investments, I should say, in QOFs, investors should consider these investments from a financial and economic perspective as they would any other investment. And then finally, these investors who may be investing in QOFs, need to maintain records to support their investment. And that's simply similar to any other investments that they may have. So let's start with an overview of the Qualified Opportunity Zone.

We're going to Sherry and I are going to provide you with a general understanding of what is a Qualified Opportunity Zone. We going to talk about how investors can invest in an Opportunity Zone through one or more of these new Qualified Opportunity Funds, and again, Sherry and I will be referring to those as QOFs through the rest of the presentation. We will discuss the requirements to become a QOF and how a QOF can self report or self certify to the Internal Revenue Service that they meet the requirements by filing a new form that we have created for 2018. And as I think most of our attendees today are aware, the law creating the new Opportunity Zones was part of the Tax Cuts and Jobs Act, which went into effect on December 22nd 2017, and specifically TCJA, which is the acronym for Tax Cuts and Jobs Act, added two new sections of the Internal Revenue Code that reference Qualified Opportunity Zones. The first is Section 1400Z-1 and 1400Z-2 as the second section. And they were part of the law as you can see on the third bullet on your screen. Now, here you see a map, a bit blurry I aknowledge, but it does have with darkened sections which highlight the areas of the United States or at least the continental United States that have been designated as Qualified Opportunity Zones. So this map shows the contiguous U. S., but keep in mind that there are Opportunity Zones in all 50 states, and that would include Alaska and Hawaii plus Puerto Rico, plus all U. S. territories.

Each of those entities has one or more Opportunity Zones. So what are these OZs or Opportunity Zones, and what is their purpose? Well, they're explicitly an economic development tool, and they are designed to encourage long term investment within the zones and to boost job creation in low-income rural and urban communities.

So the overarching goal here is to encourage investment, and the way to do that under the law is to provide certain federal tax benefits to investors that choose to invest eligible capital gains in these new Qualified Opportunity Funds.

Now, the investors with those eligible capital gains who invest in the Qualified Opportunity Funds or QOFs, these investors may elect or choose to defer paying tax on those capital gains either in whole or in part of the gain.

And they can make that election until they sell their investment in the Qualified Opportunity Fund. Now, the deferred gain if elected that is invested in a QOF, it's included in the income of the investor only in the taxable year, which includes the earlier of the date on which the investment is sold by the investor, sold or exchanged by the investor, or December 31st of 2026. And you heard that correctly.

December 31st, 2026. So there's a considerable deferral period for making a proper investment in a Qualified Opportunity Fund.

So one important point to keep in mind is that these investments, in order to elect to defer the capital gain on the investments that are being made in the QOF, they have to be made within 180 days of the time that the capital gain is realized.

And we will go into greater detail on this provision later in the presentation.

So now let's move on and talk a little bit about the designations of the Qualified Opportunity Zones. Now, there were Opportunity Zone census tracts that were nominated at the beginning of the year by a governor or other chief executive of a state or district, such as the District of Columbia, or a territory.

Opportunity Zones are defined in a particular section of the Internal Revenue Code, and that's Internal Revenue Code Section 45D(e), and they are defined, and I'll quote here, a census track that has a poverty rate of at least 20% or the median family income does not exceed 80% of the statewide median family income. That's median and not medium. Now by law, all low-income communities within Puerto Rico were deemed certified and designated as Opportunity Zone tracts effective December 22, 2017. And as you can see, on June 14th of this year, the designation process was completed for all 50 states, and then the Service announced via Notice 2018 48, the list of all 8,762 designated Opportunity Zones. That's an indication why so much of that map that you saw on a prior slide had darkened areas around the country. There's a considerable section of the United States that total 8,762 census tracts. And these designations stay in place until calendar year the end of year calendar year 2028.

So with that, Philip, I think we're ready perhaps for our first polling question.

>> YAMALIS: Awesome. I agree. Remember, you may need to turn off your pop up blocker to receive these questions. So let's get started. Our first polling question is, which statement is true with regard to Opportunity Zones?

Listening to Rich, which do you think is the correct answer, which is true? A, Opportunity Zones were designed as an economic development tool to encourage long term investment and job creation in low income communities? Is it B, investment is encouraged by providing tax benefits to investors that invest capital gains into Qualified Opportunity Funds? C, Qualified Opportunity Funds invest in tangible Business Property and/or qualified businesses located in Opportunity Zones, or is it D, all of the above? Please take a minute and click in the radio button that you believe most closely answers this question.

OK, again, do you think the correct answer is A, Opportunity Zones were designed as an economic development tool to encourage long-term investment and job creation in low-income communities? B, investment is encouraged by providing tax benefits to investors that invest capital gains into Qualified Opportunity Funds?

C, Qualified Opportunity Funds invest in tangible Business Property and/or qualified businesses located in Opportunity Zones? Or is it D, all of above?

Think back on what Rich just presented to you. Okay. We'll stop the polling now.

And we'll share the correct answer on the next slide. Okay. And the correct response is D, all of the above. And my producer is telling me that 94% of you responded correctly.

That's a great response rate. So thanks for paying attention. That's awesome, Rich.

Thank you. So Sherry, let me turn it over to you, and I'll ask you to discuss the tax benefits in more detail of the Opportunity Zones.

>> SAUCERMAN: Okay. Thank you, Philip. And that is a great response rate.

Glad to hear so many people are paying attention. Well you know, the main benefit to investors is the ability to defer the tax on eligible capital gains. Now, on October 19th of this year, the Treasury and IRS issued proposed regulations, and those regulations are on Code Section 1400Z 2, and they're called investing in Qualified Opportunity Funds.

Now these proposed regulations provide detailed information regarding what are eligible capital gains. Now, as Rich noted earlier, the temporary deferral is going to end on the earlier of the date on which the investment and the Qualified Opportunity Fund is sold or exchanged, whether that is in whole or in part or on December 31st of 2026. Now, investors are going to report their capital gain and elect the deferral on Form 8949 attached to their return.

Now, on this slide we show you how you indicate that deferral.

Now, the 8949, that's the same form that you use to report capital gains.

If you look at the bottom half of this slide, you can see the section of Form 8949 where you would report a sale or exchange of capital assets. And as I said, this is also where you are going to report not only the gain but you're going to report your election to defer the gain by investing in that QOF. You'll report the deferral on its own row, so in Column A you enter QO Fund, the name, and the taxpayer identification number of the QO Fund into which you invested.

In column B, you enter the date you invested in the QOF. You leave C, D, and E blank.

Then in Column F you're going to enter this new Code Z, which indicates that you're electing to make that deferral. And then you enter the amount of the deferred gain as a negative number in Column G. You'll see that in parentheses there on the slide. Now, the election to defer that capital gain gets reported on the same return that the capital gain is reported. So if you look at the second entry there, you'll see that date is 2 28 2019. And this is a 2018 return. What this means is that the taxpayer had a capital gain in 2018, and it's reported elsewhere on the return. And they invest they re invested that capital gain in a QOF within that 180 days. It just extended into 2019. And so they actually made the investment on February 28th. Okay. So that's great. You've deferred the gain, but there's more. If the Qualified Opportunity Fund investment is held for at least five years, then the basis of the investment in the QOF gets increased by 10% of the amount of the deferred gain. Now, if the investment is held for at least seven years, then that 10% increase in basis in the investment rises to 15% of the deferred gain. Now, if the investor holds a Qualified Opportunity Fund investment, it has to have originated with a deferred gain. But if they hold that for at least ten years, then the investor is eligible to elect an increase in basis of the QOF fund investment equal to its fair market value on the date that the Qualified Opportunity Fund investment is sold or exchanged. So what happens to the deferred gain? Well, if you sell your investment in the QOF, you're going to include that deferred gain in income, and it gets reported on that Form 8949, and it will have the same character as the original gain. So in other words, if you were deferring the short term gain, when you dispose of your interest in the QOF, that deferred gain will be reported as a short term gain. Now, if you still have your investment on December 31st of 2026, you're going to have to report that deferred gain on your 2026 income tax return. But that's just the deferred gain.

It's not any gain on your investment in the QOF. And now I think it's time for our second polling question, Philip.

>> YAMALIS: I think you're right, Sherry.

>> SAUCERMAN: Are you there?

>> YAMALIS: I am. Our next polling question is, I sold some stock for a gain in 2018.

How much time, from the date of sale, do I have to invest the gain in a Qualified Opportunity Fund?

What do you think the correct answer is? Is it A, 30 days, B, 90 days, C, 180 days, D, one year?

Please take a minute. Think back on what Sherry just presented to you and click on the radio button that you believe most closely answers the question.

I sold some stock for a gain in 2018. How much time from the date of sale do I have to invest the gain in a Qualified Opportunity Fund? Is it A, 30 days, B, 90 days, C, 180 days or D, one year? And hopefully you're submitting your answer.

Okay. We'll ask our producers to stop the polling now, and we'll share the correct answer on the next slide. And the correct response is, drum roll please, there it is. C, 180 days. Let's see. How did we do with that one? Okay. I'm showing that about 84% -- 84% of you responded correctly. Not bad. Not bad.

That's most of you are paying attention. We appreciate that. So again, the correct response is C, 180 days. So thanks, Sherry, for that. Let's turn it over to Richard, and Richard, perhaps you can share with us about -- more about the Qualified Opportunity Funds.

>> FURLONG: Certainly, Philip. So to enjoy the benefits that Sherry just described, the investment must be made in a QOF or Qualified Opportunity Fund.

So it's important for investors and for those looking to establish these funds understand the basic requirements. The first is that QOF is an investment vehicle that is an entity that files for federal tax purposes either as a partnership or a corporation.

So it would be filing either Form 1065 or an 1120, 1120 series.

And it's organized for the purposes of investing in a Qualified Opportunity Zone property or QOZ property. Now the QOF must hold at least 90% of its assets in Qualified Opportunity Zone property. And this is what is referred to as the Qualified Opportunity Fund Investment Standard, the 90% of assets must be QOZ property.

Now, a Qualified Opportunity Fund that does not meet this investment standard can still self-certify to the Internal Revenue Service, but the fund will be liable for a penalty for failing to maintain the investment standard.

Now, the entity, whether it's taxed as a partnership or corporation for federal tax purposes, that meets the requirements to be a QOF self certifies as a QOF by completing a brand new form. It's Form 8996, which we'll look at in a moment, and they attach this Form 8996 to their corporate or partnership federal tax, income tax return.

And that tax return, be it a partnership or a corporate tax return with the attached Form 8996, must be filed timely taking into account any extensions.

And one other important point to keep in mind, the Form 8996 must be filed annually to certify compliance with the investment standard each year or compute a penalty for failure to meet that investment standard. Now, on this slide we look at the snapshot of a draft Form 8996, and as you can see, this was posted on and released in October of this year. Important caveat here.

Please never file any draft forms with the Internal Revenue Service.

They're for educational purposes only and commentary.

And by the way, the form -- the draft Form 8996 and the draft instructions are part of your resources today. There are links to those. I highly recommend them, because the instructions, which are only three pages, provide all the definitions that Sherry and I are covering today. Now in part 1 of the form, you're going to provide some general information and certify that the corporation or partnership was organized specifically to operate as a QOF. You'll indicate whether you are taxed for federal purposes as a corporation or partnership, whether you're organized to invest in Qualified Zone Property. And also, if this is the first year of operation and probably in 2018 it will be the first year that the QOFs will be in operation, you indicate the initial month of operation. And then on the next slide we have part 2, which is the bottom half of the form. This determines whether you meet that 90% investment standard for the QOF. Now to determine the 90% investment standard, you take the average of the percentage of Qualified Zone Property held by the QOF or held within the QOF as measured on the last day of the first six month period of the tax year of the QOF, and then average that with the amount of the Qualified Opportunity Zone Propertyheld on the last day of the actual tax year of the QOF and you take the average. Now particularly this year in 2018, we'll probably be seeing QOFs established in the middle of the calendar year. So if you become a QOF in the middle of the calendar year, then the six month period starts from the month you indicated in part 1 of the form, and there's a line, line 4 of the form, to indicate the first month that you are a Qualified Opportunity Fund. So with that, Philip, I think we're ready for our next polling question.

>> YAMALIS: Thanks, Rich. I think you're correct. Our next polling question is, to qualify as a Qualified Opportunity Fund, an entity must -- What do you think the correct answer is? Is it A, file as a partnership or a corporation for federal tax purposes? B, be organized for investing in Qualified Opportunity Zone or QOZ property? C, hold at least 90% of its assets in Qualified Opportunity Zone property? Or is it D, all of the above? Please take a minute.

Click on the radio button that you believe most closely answers this question.

Again, do you think the correct answer is A, files a partnership or a corporation for federal tax purposes? B, be organized for investing in QOZ property?

C, hold at least 90% of its assets in a Qualified Opportunity Zone property?

Or D, is it all of the above? Okay. Indicate your answer by clicking on the radio button, and with that, we will stop the polling now. Let's share the correct answer on the next slide.

And the correct response is, of course, D, all of the above. All of the above.

Let's see how you did. Wow, 95% of you responded correctly according to the computer here.

So I thank my producer getting that sent out to us, 95% that's an awesome response rate.

So thanks for paying attention. Thanks, Richard. So before we go on, several people wanted to know, Rich, if the QOF could be a limited liability company.

>> FURLONG: Oh excellent question, Phil. This was a question that was coming up almost immediately after the statute was passed. And the proposed regulations issued in October addressed this issue. So as many of our attendees know today, a limited liability company of two or more members can elect for federal tax purposes to be treated as either a partnership or a corporation for federal tax purposes. Indeed, the default for an LLC of two or more members is as a federal partnership, but if the LLC -- irrespective of whether the two or more members of an LLC are taxed for federal purposes as a partnership or a corporation, the LLC as a legal entity can establish a Qualified Opportunity Fund, Phil. So a very good question.

>> YAMALIS: Excellent. Thank you, Richard. Appreciate that.

So, Sherry, another one of the requirements for a QOF is that they hold at least 90% of the assets in Qualified Opportunity Zone Property.

Can you explain what's meant by this?

>> SAUCERMAN: I certainly can, Philip. And that is a good question.

You know, what is Qualified Opportunity Zone Property? Well it can be one of three things.

It can be Qualified Opportunity Zone Stock. It can be Qualified Opportunity Zone Partnership Interest, or it can be Qualified Opportunity Zone Business Property.

Now, the stock and the partnership interest must be in a domestic business that the QOF acquires after 2017, and they have to acquire it directly the interest directly from the business, and it must be acquired solely in exchange for cash.

The business must be a Qualified Opportunity Zone Business when that stock or partnership interest is purchased. Which then raises the question, well, what is a Qualified Opportunity Zone Business? Well, that is a trade or business where substantially all the tangible property that is owned or leased by the business is Qualified Opportunity Zone Business Property. And the proposed regulations define this substantially “all” term as 70%. Now, the QOZ Business Property or the Qualified Opportunity Fund or QOZ Business is what we're talking about here is tangible property that's used in a trade or business that was acquired by purchase after December 31st, 2017. It also needs to be new or will be substantially improved, and substantially all the time this property is held it is in an Opportunity Zone. Now, property is considered substantially improved if during any 30 month period beginning after the date of acquisition the additions to basis exceed an amount equal to the adjusted basis at the beginning of that 30 month period. Now substantial improvement is discussed in the statute -- actual statute, but examples of substantial improvement can be found in Revenue Ruling 2018 29. And you should have a link to that in your materials document. Okay. Philip. I think it's time for our final polling question.

>> YAMALIS: It certainly is. It certainly is. Now let's do that.

So our final polling question is, what is not true about the Qualified Opportunity Zone Business Property? Again, what is not true about the Qualified Opportunity Zone Business Property? Which do you think is not true? Is it A, it must be tangible property used in a trade or business, B, it must be new, C, it must be acquired by purchase after 12 31 17, or D, substantially all of the use of the property must be in an Opportunity Zone? Again, tell us what answer you think is not true about Qualified Opportunity Zone Business Property. A, it must be tangible property used in a trade or business. B, it must be new. C, it must be acquired by purchase after December 31, 2017, or D, substantially all of the use of property must be in an Opportunity Zone. Which of the four is not true?

I can hear the “Jeopardy” music playing in the background. Okay.

Let's stop the polling now. And let's share the correct answer on the next slide.

And as you can see, the correct response is B. It must be new.

The property needs to be either new or will be substantially improved.

So let's take a look. It shows that 86% of you answered that correctly.

Sherry, do you think we need to clarify that just a bit?

>> SAUCERMAN: No, it sounds like they got it pretty well on. And you stressed the main point. It needs to either be new, or it's going to have to be substantial improved. So it doesn't actually have been to be new. But new property is good.

>> YAMALIS: That's good. So, yeah, it did get a good response rate.

And you know, I want to go back to the second polling question, if that's okay with you.

The one that I sold some stock for a gain in 2018. How much time from the date of sale do I have to invest in the gain in a Qualified Opportunity Fund?

The correct answer was 180 days. We had 84% of people answer correctly.

That's usually a good response rate, but do you want to just make sure that we clarify that?

>> SAUCERMAN: Well the choices were 30, 90 I think 30, 90 and –- 30, 60, and 180 days?

>> YAMALIS: 30, 90, 180 and one year.

>> SAUCERMAN: You can invest it in fewer than 180 days, but you cannot go past that 180 days. You can't wait for a year. You won't be able to get the deferred gain option.

>> YAMALIS: Okay, so it's that simple, 180 days is six months you can invest less than that, but you can't go over that six months or 180 days?

>> SAUCERMAN: Correct.

>> YAMALIS: Excellent. I get it. Just wanted to make sure I got it. If I get it, I'm sure most of you are getting it out there. Thanks, Sherry.

Before we move on to the question-and-answer portion of our presentation, I understand that you have some resources that you want to share with us?

>> SAUCERMAN: Yeah, thanks, Phil. Now, you do have a document that you can access, if you didn't get it in the e mail, you can access it from your viewer portal under the materials button. I just wanted to point out some of the resources that we have.

I do recommend going to the tax reform page of

On the individuals page you'll find a link to Opportunity Zones, and it'll have links to the regulations that Rev. Ruling I told you about and other guidance, including frequently asked questions and so on. And then also we have the draft forms are available, so be sure you use that resource document. I think it can get you a lot of very helpful information. Okay, Philip, back to you.

>> YAMALIS: Thanks, Sherry. Appreciate that. So once again in case you didn't realize it, my name is Philip Yamalis, and I will be the moderator for this question-and-answer session that we have some time for. So we are -- It is an awesome opportunity today. We're so happy to have five subject matter experts joining us to help answer your questions. So we have with us today Laura Schmitz and Wanda McLaughlin. They're both with our small business and self employed division.

We also have with us Mr. Hamilton Rojas. He's with our large business and international division, and also joining us from IRS counsel today we have Julie Hanlon-Bolton and the one and only Mr. Chuck Hall. So before we begin the question-and-answer session, I want to mention that we may not have time to answer all of the questions submitted during today's webinar. However, let me assure you that we will answer as many as time allows. If you are participating today to earn a certificate and related continuing education credit I know a lot of you are and you qualify by you will qualify for this credit by participating at least 50 minutes from the official start time of this webcast, which means the first five minutes of chatting that we engaged in before the top of the hour, that unfortunately, doesn't count towards the 50 minutes. Sorry.

So as long as you meet that 50 minute threshold, you aren't required to stay on for the Q & A portion. But we certainly hope you will, because it's not that often we have so many subject matter experts joining us. So the five of you, I hope you're ready. We have received quite a few questions, so let's get started so that we can get to as many as possible here today. Okay? And I'm going to start right off the bat with Let's see. Either, yeah Laura. I'm going to go to Laura first.

You know, who determines the locations of these Opportunity Zones? We saw the map that Rich roughly went over of the contiguous United States. Who determines the locations of Opportunity Zones? How do we determine them?

Let's go with Laura.

>> SCHMITZ: Hi, this is Laura. The Opportunity Zones are census tracts, and the eligible census tracts were nominated by the governors or the CEOs of the states or the territories. So they were the ones that nominated them, and they submitted their nominations based on there's a time frame that they had per law, and after they sent in their nominations, then it was a matter of just having them certified off and accepting them.

>> YAMALIS: Very good. So it's basically census driven is what I'm hearing you say?

>> SCHMITZ: Yes, and then the determination of whether they're eligible was the information for the individual census tracts. And once they were determined to be low income communities, then the state governors had the ability to select up to 25% of them. If there was less than 100 of them, then they were automatically allowed 25. For Puerto Rico, all of their low-income census tracts were deemed Opportunity Zones.

>> YAMALIS: Awesome. Thanks for that, Laura. So let me turn it over to one of our counsel folks, either Julie or Chuck. Julie, can retirement accounts – can they be liquidated to invest in Opportunity Zones? And how would I go about doing that?

>> HANLON-BOLTON: So in our I just want to say generally, because a lot of questions that I'm seeing can be answered in our regulations, our notice of proposed rulemaking that was issued back in October. The regs will answer these questions more specifically. But for retirement funds you have to have a capital gain in order to invest in a Qualified Opportunity Fund. So retirement funds, it just depends if you are paying capital gains on that retirement fund.

>> YAMALIS: Okay. So as long as there's capital gains, it would qualify.

Capital gains can go into a Qualified Investment Fund. All right. Let me I'm pretty sure Rich answered this, but can the QOF, Qualified Opportunity Zone Fund, be an S corp? Let's ask either Wanda or Hamilton that question. Can the QOF be an S corp?

>> McLAUGHLIN: Yes, this is Wanda. And I can take that question. The QOF can be an S corp. The QOF has to file either as a corporation or a partnership.

And an S corp is, obviously, a corporation. So yes, it can file as an S corporation.

>> YAMALIS: Very good. And then Rich did clarify this. But I'll make sure everyone got it because I saw the question came in afterwards. An LLC can apply for that, since there's only one partnership or corporation, and the LLC can apply?

>> McLAUGHLIN: Yes, an LLC can apply, and as long as it's filing either as a partnership or a corporation for federal tax purposes.

>> YAMALIS: Very good. All right. Let me go over to Laura again.

Can nondeferred gain money be invested in a Qualified Opportunity Fund? Nondeferred gain money.

>> SCHMITZ: Hi, yeah, this is Laura. You know, money can be invested into a fund, but if it's nondeferred and if it's capital gain that's not elected to be deferred, it doesn't receive any tax benefits under this provision. So that means as an investor in the fund, none of the tax benefits that are provided under this provision to the investors will be available for that investor.

>> YAMALIS: That certainly makes sense. I appreciate that.

>> HANLON-BOLTON: But can I just add -- this is Julie from counsel.

But there is a provision in the statute that talks about mixed funds.

So there is a way to invest in these Qualified Opportunity Funds, even though you're not getting the tax deferral.

>> YAMALIS: Okay. Very good. Thanks Julie for adding to that.

So then let me ask you or Chuck, as our esteemed members of counsel, can only funds obtained from the sale of an asset be invested to take advantage of Opportunity Zone benefits? Would money invested from savings, equity, or et cetera be ineligible, then, for an Opportunity Zone benefit?

>> HALL: So, OK, this is Chuck. So again, the essential thing to obtain the tax benefits, the deferral, is an investment of gains. And capital gains can be from an actual or deemed sale or exchange or any other gain that is required to be included in the taxpayer's computation of capital gain. So things just from savings like that would not be capital gain, and like Julie said earlier, it can be invested, but you wouldn't get the tax benefits of deferral.

>> YAMALIS:Excellent. Excellent. Thanks, Chuck. I appreciate that. Capital gain is the magic word for the day. All right, I believe we covered this, but let me ask Hamilton or Wanda, either one of you. Remind us, how do you find out if a property is in a Qualified Opportunity Zone?

>> McLAUGHLIN: Okay. This is Wanda. And I can take that one again.

You can find it in the Federal Register at IRV Notice 2018 48.

And there's also a visual map of the census tracts, and that can be found at the Opportunity Zone resources link, which is on

>> YAMALIS: Very good. Excellent. These are some excellent questions that we have going on here. All right, Laura, let's go back to you. I have a question here.

In what circumstances might an investor not elect to step up the basis of investment to fair market value at sale after ten years?

>> SCHMITZ: Hi. This is again, this is Laura. That's a good question. Let's say that you have your investment in the Qualified Opportunity Fund, and if the value of the investment like any investment, it goes down, and that way you'd still have your ability to, you know, take the losses from the sale of that investment.

>> YAMALIS: So again we're not in the business of planning for you, but that would be a good reason why you would take the step up basis.

>> SCHMITZ: Yeah. If it goes up, then you would want the step up basis.

So that way you would want to elect the stepped up basis, so that way that would build to have that final tax benefit that's available, if the original investment originated from an elected deferred gain.

And that's an important thing that a lot of people -- that's one of the things that Julie is trying to make sure that is impressed upon everybody.

If I take money out of my savings account and I put it into a Qualified Opportunity Fund, well, there's no capital gain there to be deferred. But also, ten plus years from now when I sell that investment, I sell my shares of stock or I sell my partnership interest depending on what type of Qualified Opportunity Fund, if the value has increased and that money originated from nondeferred capital gains, that investment originated from nondeferred capital gain, that means I do not have that election available to me to increase the basis to the fair market value or the increased value at the time. So I'll end up having a capital gain from that sale.

>> YAMALIS: Great. That makes sense. That makes total sense.

I appreciate that, Laura. Julie or Chuck, let me go to you. I know early in our webinar Rich mentioned a deferral of 2026, and he pointed that out.

How is it possible then -- if the deferral is up to 2026, all right, we're in the year 2018.

How is it possible to have a ten year investment?

>> HANLON-BOLTON: Chuck, do you want me to take this one?

>> HALL: Julie, you can take that one. Yes great. Thanks Julie.

>> HANLON-BOLTON: OK. So with the business statute there are two benefits.

The first one is the deferral until 2026. The second benefit -- and these are both elections, so I should say the second election is to take that original deferral and get a stepped up basis after ten years of holding the investment.

So they're two separate. And I think there's been a lot of questions on here about this ten year rule, and I just think people are confused thinking that it's one election.

So if you make an election to defer capital gains in 2023, you have until 2033 to hold that investment in order to get the step up basis.

>> YAMALIS: Wow. That's awesome. Okay. Yeah. I think you clarified that very well.

>> HANLON-BOLTON: Well, let me just add something to it. In our regs, if you look at 1400Z 1, there's a provision that says that the O Zones only go until 2028.

So we've provided more time than 2028 in order to keep your basis in the investment or to keep your investment and still get that ten year step-up.

>> YAMALIS: Okay. That truly makes sense. And I appreciate it. Answered like a true counsel.

Thank you so much by bringing the regs into that. All right.

So here's something else with time frames. We mentioned the 180 day time frame, and we asked Sherry to qualify that second question. So when the gain occurs inside of an entity, does the 180 days run from the year end of the entity?

When does that 180 day time frame begin? And I guess this is towards counsel, so Julie, chuck, one of you, please, take that question. Don't fight now.

I know one of you will do a great job answering that.

>> HANLON-BOLTON: I'll step up. I'll step up. So it's the answer is, it depends.

It depends on what type of entity you are, and the question that was asked didn't specify what kind of entity. So as an individual, you have 180 days from the day that you sell and you get your capital gains, but depending on your type of entity, you might have 180 days from the end of the tax year.

So for partnerships for partners it's 180 days from the last day of the taxable year.

For RICs and REITs shareholders, it's the same thing. But if you look at the – as I keep pointing to the MPRM, the regs, it goes through and gives examples of what the 180 day rule looks like for certain entities.

>> YAMALIS: Very good. So let me ask another question, then, dealing with that.

A Qualified Opportunity Fund might be holding a lot of cash for a period of time until various building permits, et cetera are obtained and construction is finally finished on a project. So how is this time frame considered vis-a-vis the 90% tax that we're looking at?

>> HANLON-BOLTON: So the regs have a special safe harbor for reasonable amounts of working capital.

And in order to get this benefit, you have to designate in writing the types of these amounts, so what these amounts are being used for. And it says in the regs, acquisition, construction and/or some substantial improvement of tangible property.

And there has to be a reasonable written schedule, and the way that the money is used has to be consistent with what you had designated in writing and your written schedule.

>> YAMALIS: Excellent. Excellent. So I'm going to ask one more question here.

The proposed reg states that a gain is eligible for deferral if it's treated as a capital gain for federal income tax purposes. Does this include qualified dividend income?

Hamilton, wanda, do you guys want to take a stab at that?

>> McLAUGHLIN: This is Wanda again. Yes, it does include qualified dividend income.

>> YAMALIS: So qualified dividend income is included in a gain eligible for a deferral if it's treated as a capital gain?

>> ROJAS: To the extent that it's treated as a capital gain, yes it is, right.

>> YAMALIS: To the extent it's treated as a capital gain. Very good.

Thanks for clarifying that. I appreciate that. Wow. That's the time we actually have for questions on this webinar. I really want to take this opportunity to thank Laura, Wanda, Hamilton, Julie, Chuck for sharing their knowledge, and there's a lot of it there, and expertise in answering some of our questions today.

Richard and Sherry, before we close the Q & A session today, what are the most important points that the two of you want our attendees to remember from today's web conference? Richard, why don't you go first and share your money important points.

>> FURLONG: Well thank you, Philip. So the first point I'd like to make is that to qualify for the deferral, the eligible capital gains that you're electing to defer must be invested in the QOF within 180 days of being realized.

Secondly, the Qualified Opportunity Fund must be held for at least five years to enjoy the step up in tax basis by 10% of the amount of the gain that you have elected to defer.

And then if that investment is held for at least seven years, then that 10% increase in tax basis of the investment within the QOF rises to 15% of the deferred gain. If the investor holds a Qualified Opportunity Fund investment that originated from a deferred gain for at least ten years, then the investor is eligible to elect to defer on the basis of the qualified fund investment equal to its fair market value on the date that the QOF investment is sold or exchanged.

So you get a step-up in basis to the fair market value of the investment if you hold it for a full ten year period.

And that came out both in Sherry's discussion and in our Q & A. And then finally, when we were talking about deferring the gain deferring the capital gain, including the qualified dividends that are treated as capital gains, they retain their original character. And by that I mean if the deferred gain that you've elected to defer is short term, then when you dispose of your investment in the QOF, irregardless of how long you hold it, you would report this deferred gain as a short term gain and pay taxes and calculate it accordingly. So that, Phil, I think is my most important points.

>> YAMALIS: Thanks, Richard. Appreciate that. Sherry, what are your closing thoughts today?

>> SAUCERMAN: Okay, thank you, Philip. Well, while a Qualified Opportunity Fund can be an LLC, that LLC must elect to be taxed as either a partnership or a corporation, and we determined it can be an S corporation, as well, for federal tax purposes.

And the fund must hold at least 90% of its assets in Qualified Opportunity Zone Property.

That's the investment standard. If the fund doesn't maintain that standard, they will be liable for a penalty. Now an entity that meets the requirements will self certify out of the QOF by completing the Form 8996 and attaching it to their timely filed corporate or partnership federal income tax return, and since this is a new provision, that will be attached for the first time to their 2018 return that gets filed next year.

>> YAMALIS: Gotcha. We're looking forward to that, aren't we?

Thanks, Richard and Sherry, thank you my colleagues.

I'm amazed at the information that you provided today -- on the updates on tax reform basics of Opportunity Zones, and of course, a big thank you to our subject matter experts.

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