Amendments to Qualified Opportunity Zones Clarify 2 Key Areas– September 02, 2021 by Angel Rice

The IRS recently issued corrective amendments to the final Qualified Opportunity Zone (QOZ) regulations. The amendments, effective August 5, 2021, and applicable on or after January 13, 2020, clarify the use of the working capital safe harbor and its interaction with the requirements to be considered a Qualified Opportunity Zone business (QOZB).

As a reminder, for an entity to be considered a qualified QOZB, it must meet a number for requirements. However, we will focus on two specific requirements the corrective amendments address:

  1. 70% tangible property. This states that 70% of the tangible property owned or leased by the taxpayer must be QOZB property.
  2. Nonqualified financial property. This states that no more than 5% of an entity’s property can be nonqualified financial property. A reasonable amount of working capital (18 months or less) will not be considered nonqualified financial property.

The final regulations provided a working capital safe harbor that allows a QOZB to hold more than 5% of nonqualified financial property/working capital if it’s used for a business within the QOZ. Specifically, the safe harbor requires that:

  1. The entity designate the amounts, in writing, that will be used for the development of a trade or business in a QOZ, including when applicable the acquisition, construction and/or substantial improvement of tangible property in a zone;
  2. The schedule is reasonable and calls for the working capital assets to be spent within 31 months; and
  3. The working capital assets are used in a manner consistent with the schedule.

While an entity is using the working capital safe harbor, the tangible property subject to the plan is expected to be QOZB property, and as such during the safe harbor period(s) will be treated as QOZB property for purposes of meeting the 70% tangible property requirement.

This safe harbor was welcome news to entities that held cash and property that could meet the 70% tangible property requirement, such as land purchased after December 31, 2017. However, for entities that may be holding cash for future development or nonqualified property, such as land that was contributed or purchased prior to December 31, 2017, it was unclear how these entities could meet the 70% tangible property standard while using the safe harbor.

The IRS answered this question by providing an additional safe harbor as part of the 2020 corrective amendments. However, the 2021 corrective amendments clarify a citation error from 2020 as well as reinforce the 2020 safe harbor. Now it is clear that entities using the working capital safe harbor — and as a result are treating otherwise nonqualified financial property as a reasonable amount of working capital — will be deemed to meet the 70% tangible property requirement during the working capital safe harbor period.

Property meeting the 70% requirement during the safe harbor period will not be QOZ property for any other purpose. The 2021 corrective amendments also clarify that this safe harbor is only available for start-up businesses; however, the regulations do not define which entities qualify as a start-up.

Contact Angel Rice at or a member of your service team to discuss this topic further.

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Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.