On April 17, 2019, the Internal Revenue Service issued additional guidance on the proposed regulations for the deferral of gain under Code Sec. 1400Z‐2 Qualified Opportunity Zone (QOZ) tax incentives. The purpose of the additional guidance is to provide expanded clarity for the eligibility for deferral treatment. While the regulations are proposed, taxpayers and tax practitioners may rely on the guidance until final regulations are issued. The following memo is intended to broadly highlight the additional guidance received and supplement key provisions originally issued with the initial proposed regulations.
What qualifies as a trade or business?
The originally proposed regulation language states that a Qualified Opportunity Fund (QOF) and Qualified Opportunity Zone Businesses (QOZB) must adhere to Code Sec. 162. This leaves much room for debate on whether or not an activity is considered a trade or business. In general, to qualify as an active trade or business the activities must be continuous with the primary purpose of making a profit.