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On December 11, 2018, the IRS issued a <a href="https://www.irs.gov/newsroom/tax-reform-creates-opportunity-zone-tax-incentive" target="_blank" rel="noopener">Tax Tip on Qualified Opportunity Zones</a>. While the Tax Tip does not provide any new information, we would like to highlight a few urgent year-end considerations for those who have recognized a capital gain in 2018 and still have not invested in a Qualified Opportunity Zone Property (QOZP) or Qualified Opportunity Zone Business (QOZB) and provide some further comments for those who have invested already.

Here are some considerations:
<ul>
 	<li>Investors have 180 days from the time of recognizing gain to invest in a Qualified Opportunity Fund (QOF).</li>
 	<li>A QOF must hold 90 percent of its assets in QOZP, determined by the average of:
<ul>
 	<li>the percentages of QOZP assets held by the QOF on the last day of the first six-month period from the QOF election date, and</li>
 	<li>those held on the last day of the QOF’s taxable year.</li>
</ul>
</li>
 	<li>Individuals who formed and invested in a QOF during the second half of 2018 must have the QOF invest in QOZP by December 31, 2018, or they could face a penalty (which is a monthly interest charge on the shortfall). If the QOZP has been identified, the simplest method to meet the 90 percent QOF requirement is for the QOF to invest the capital gains by December 31, 2018 into a new LLC or corporation that will document the required necessary steps toward property acquisition and development (i.e., scheduled acquisition and construction date to meet the 31-month safe harbor criteria).</li>
 	<li>If the 180-day period to invest capital gains in a QOF ends in 2019, the investor should consider making the investment in 2019 to allow the full six-month period for the QOF to decide on an investment in a QOZP, as well as to reap the benefit of any forthcoming additional IRS guidance. Capital gains recognized by partnerships or S corporations might have additional time.</li>
 	<li>An investor with capital gains that were recognized and invested in a captive LLC (consisting of very few related investors) during the second half of 2018 with no IRS Form 8996 filed yet should consider dissolving that entity, returning the cash investments and instead utilizing the cash investments to fund a new LLC (a new QOF) during the remaining permitted 180-day period during 2019. Future guidance might address the effect of such restructuring, but this approach is merely permitting what could have been done originally.</li>
</ul>
The IRS has received numerous recommendations to extend the six-month period for a QOF to invest in QOZP to satisfy the 90 percent test.

Additional IRS guidance is expected in January.
<h5>FOR MORE INFORMATION</h5>
For more information, please visit the <a href="https://www.thompsonhine.com/services/qualified-opportunity-zones" target="_blank" rel="noopener">Qualified Opportunity Zones page</a> on our website, which includes a list of our Qualified Opportunity Zones team members and <a href="https://www.thompsonhine.com/uploads/1139/doc/QOZ_2018_year-end_considerations0.pdf" target="_blank" rel="noopener">examples of how to apply the deadlines for the 90 percent assets test</a>.

<em>This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel. This document may be considered attorney advertising in some jurisdictions</em>.

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IRS Issues Tax Tip on Qualified Opportunity Zones