www.ozpros.com Special offer - Go to ozpros.com/save50 1 Copyright OZE, Inc. © 2020 The What – What is a Qualified Opportunity Zone (QOZ) and Where are the QOZs Interactive map available on: opportunitydb.com/map 2 Copyright OZE, Inc. © 2020 Opportunity Zones – Three Ultimate Benefits Temporary Step Up In Basis Any investment in a Deferral QOF held for 5 years Capital Gains from the gets a tax basis increase sale of any asset (if of 10%. This means that reinvested within 180 when the taxes are paid days) are deferred until on the original capital the sale of the new gain in April of 2027, investment or December the amount paid will 31,2026 be 10% less. Permanent Exclusion – Step Up In Basis to Fair Market Value Investments held for 10 years will pay no capital gains tax on the post acquisition gains and will also avoid depreciation recapture. 3 Copyright OZE, Inc. © 2020 OZ v Conventional Investment Capital Gain of $1MM Reinvested in 2020 Period Qualified Opportunity Zone Business Conventional Investment Day 1 $1mm Investment $762,000 Investment (deferred Cap Gains Tax) Year 5 10% reduction in Cap Gains Tax No Tax Benefit (Savings of $23,800) January 1, 2027 Tax due on initial investment of approximately No Tax Benefit $214,200 Year 10 $1,785,800 payout $1,161,288 pay out post tax. IRR: 4.8% ($2mm - $214,200 distribution/loans made in 2027) IRR: 6.8% If held for 10 years, the after-tax return at sale is 53.8% greater. An additional $624,512 for the QOF Investment The following example is intended to show the general benefits of a proper, qualifying investment of a $1.0 million capital gain in a QOF compared to another otherwise identical investment. This is based on a $1,000,000 investment and an applicable 23.8% capital gains tax rate and that the initial investment doubles in value in 10 years. This example also assumes that a portion of the return of the new investment will be distributed or loaned to the taxpayer in 2027 to pay the taxes due on the original investment. This example also excludes any time value of money calculation. 4 Copyright OZE, Inc. © 2020 The How - Summary of Requirements (Investor and QOF) Investor Requirements • Capital gain from sale to unrelated party can be long term or short term from the sale of any appreciated asset: real estate, Investors Investment Requirements stock, sale of business, precious metals, etc. • Must be EQUITY • Investor has 180 days to invest into a QOF • CANNOT use debt or Convertible Debt • File election with tax return (unless you use convertible debt for a Non-OZ injection and then make an Qualified Opportunity Fund “QOF” Requirements equity investment at conversion) • A partnership or corporation formed for purpose of investing in QOZ Property • Elects to be treated as a QOF • QOF must invest 90% of assets in QOZ Property, Fund which includes: QOZ Stock, QOZ Partnership, or QOF QOZ Business Property QOZ Business Property Requirements QOZB Investment Requirements • Tangible property used in business • Acquire interest in stock or partnership for • Acquired after 12/31/17 by purchase cash at original issue after 12/31/17 from unrelated seller or by lease QOZ • Must be QOZ Business at acquisition Portfolio • Original use or substantial improvement Stock or • Must qualify as QOZ Business during >90% company in OZ of QOF’s holding period Partnership • >70% use in OZ for > 90% of QOF / QOZ Business QOZ Business Requirements A trade or business in which, • >70% of tangible property, owned or leased, is QOZ Business Property 31 month working capital safe harbor if in • 50% of business from active conduct in OZ QOZ writing and substantially followed – can be • Substantial portion of intangible property Business extended to 62 months if there is another used in active business Property “substantial” influx of equity or debt • Meet nonqualified financial property requirements (i.e., less than 5% of property is attributable to certain assets) • No sin business Opportunity Zone “OZ” Copyright OZE, Inc. © 2020 Documentation Requirements – Basic Filing Investor Requirements • Capital gain from sale to unrelated party can be long term or short term from the Investor Filing Requirements • sale of any appreciated asset: real estate, Investors Capital gain and deferral reported on Form 8949 • stock, sale of business, precious metals, etc. Aggregate yearly deferral into QOFs reported on 8997 • Investor has 180 days to invest into a QOF • File election with tax return Qualified Opportunity Fund “QOF” Requirements Qualified Opportunity Fund “QOF” Requirements • A partnership or corporation formed for • QOF Articles of Organization with TCJA language purpose of investing in QOZ Property • QOF Operating Agreement or Bylaws • Elects to be treated as a QOF • QOF Compliance Resolution • QOF must invest 90% of assets in QOZ Property, • EIN showing taxation as partnership Fund which includes: QOZ Stock, QOZ Partnership, or QOF QOZ Business Property Entity Requirements QOZ Business Documentation Requirements • Acquire interest in stock or partnership for • QOZB Articles of Organization with TCJA language cash at original issue after 12/31/17 • QOZB Operating Agreement or Bylaws QOZ • Must be QOZ Business at acquisition Portfolio • QOZB Compliance Resolution Stock or • Must qualify as QOZ Business during >90% • EIN showing taxation as partnership company Partnership of QOF’s holding period • 31 or 62 month working capital safe harbor business QOZ Business Requirements plan A trade or business in which, • >70% of tangible property, owned or leased, is QOZ Business Property • 50% of business from active conduct in OZ QOZ • Substantial portion of intangible property Business used in active business Property • Meet nonqualified financial property requirements (i.e., less than 5% of property is attributable to certain assets) • No sin business Opportunity Zone “OZ” Copyright OZE, Inc. © 2020 Documentation Steps to start a QOF/QOZB: • QOF Formation (Resolution with TCJA language) It Seems • QOZB Formation (Resolution with TCJA Complicated, language) • 31 Month or 62 Month Business Plan for But Its Really Deploying Capital Not!!! • Audit Trail Compliance Plan • Raising money will require compliance with securities laws, but small businesses can use Crowdfunding, other vehicles 7 Copyright OZE, Inc. © 2020 Securities Requirements – Raising Money Investor Requirements Investor Filing Requirements • Capital gain from sale to unrelated party • Capital gain and deferral reported on Form 8949 can be long term or short term from the • Aggregate yearly deferral into QOFs reported on 8997 sale of any appreciated asset: real estate, Investors stock, sale of business, precious metals, etc. • Investor has 180 days to invest into a QOF • File election with tax return Man Qualified Opportunity Fund “QOF” Requirements ager Qualified Opportunity Fund “QOF” Offering • A partnership or corporation formed for • Reg D Filing under 506(c) purpose of investing in QOZ Property • If over $5mm, parallel CrowdFunding Offering • Elects to be treated as a QOF • Private Placement Memorandum • QOF must invest 90% of assets in QOZ Property, • QOF Operating Agreement with Investor Terms Fund QOF which includes: QOZ Stock, QOZ Partnership, or • Subscription Agreement QOZ Business Property • Investor Suitability Docs • QOF Compliance Resolution Entity Requirements • Management Fees • Acquire interest in stock or partnership for QOZ Business Offering cash at original issue after 12/31/17 • Reg D Filing under 506(c) QOZB • Must be QOZ Business at acquisition Portfolio • If over $5mm, parallel CrowdFunding Offering Stock or • Must qualify as QOZ Business during >90% company • QOZB Operating Agreement with sponsor promote of QOF’s holding period Partnership inside of distribution waterfall • QOZB Compliance Resolution QOZ Business Requirements • 31 or 62 month working capital safe harbor business A trade or business in which, plan • >70% of tangible property, owned or • Offering Docs designed to accept capital from other leased, is QOZ Business Property existing QOFs • 50% of business from active conduct in OZ QOZ • State Blue Sky Filings after getting investment • Substantial portion of intangible property Business used in active business Property • Meet nonqualified financial property requirements (i.e., less than 5% of property is attributable to certain assets) • No sin business Opportunity Zone “OZ” Copyright OZE, Inc. © 2020 Self Directed QOF into Existing QOZB Investor Requirements • Capital gain from sale to unrelated party can be long term or short term from the sale of any Investor With own capital gain appreciated asset: real estate, stock, sale of business, precious metals, etc. Cash • Investor has 180 days to invest into a QOF Newly issued Membership Interest – • File election with tax return 99.9% (need another partner) Qualified Opportunity Fund “QOF” Requirements 3rd P Your • A partnership or corporation formed for purpose of QOF QOF investing in QOZ Property • Elects to be treated as a QOF • QOF must invest 90% of assets in QOZ Property, Cash Newly issued Membership Interest – which includes: QOZ Stock, QOZ Partnership, or QOZ Business Property however much of the deal you want QOZB to take QOF to QOZB Investment Requirements Stock or • Acquire interest in stock or partnership for cash Partnership at original issue after 12/31/17 • Must be QOZ Business at acquisition • Must qualify as QOZ Business during >90% of QOF’s holding period 31 month business plan showing how QOZ Business last dollar will be spent (can be Property extended to 62 if startup with additional injection of debt or equity Opportunity Zone “OZ” during 31 month initial period) Copyright OZE, Inc. © 2020 Original Use • In order to be considered QOZBP, tangible property must meet a “use” test. That test is met if either the original use in the zone commences with the QOF (or QOZB) or the QOF (or QOZB) substantially improves the property. • Original use can be obtained until the point that the assetit is “put in service”.