Internal Revenue Bulletin 2019-21 (PDF rendition): IRS Announcements

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Bulletin No. 2019–21
May 20, 2019
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
ADMINISTRATIVE
REV PROC 2019-21, page 1190.
The revenue procedure provides issuers of qualified mort-
gage bonds, as defined in section 143(a) of the Internal Rev-
enue Code, and issuers of mortgage credit certificates as
defined in section 25(c), with the United States median gross
income figure most recently computed by the Department of
Housing and Urban Development (HUD).
EXEMPT ORGANIZATIONS
ANN 2019-04, page 1192.
Revocation of IRC 501(c)(3) Organizations for failure to meet
the code section requirements. Contributions made to the
organizations by individual donors are no longer deductible
under IRC 170(b)(1)(A).
INCOME TAX
NOT 2019-32, page 1187.
The Department of the Treasury and the Internal Revenue
Service anticipate issuing regulations and other guidance to
implement the provisions of § 45Q of the Internal Revenue
Code, as amended by Section 41119 of the Bipartisan Bud-
get Act of 2018 (BBA), Pub. L. No. 115-123 (February 9,
2018). This notice requests general comments on issues
arising under § 45Q, as well as specific comments concern-
ing the secure geological storage and measurement of qual-
ified carbon oxide, the recapture of the benefit of the credit
for carbon oxide sequestration, and other issues described
in section 3 of this notice.
REG-120186-18, page 1193.
This document contains proposed regulations that provide
guidance under new section 1400Z-2 of the Internal Revenue
Code (Code) relating to gains that may be deferred as a re-
sult of a taxpayer’s investment in a qualified opportunity fund
(QOF), as well as special rules for an investment in a QOF
held by a taxpayer for at least 10 years. This document also
contains proposed regulations that update portions of previ-
ously proposed regulations under section 1400Z-2 to address
various issues, including: the definition of “substantially all” in
each of the various places it appears in section 1400Z-2; the
transactions that may trigger the inclusion of gain that a tax-
payer has elected to defer under section 1400Z-2; the timing
and amount of the deferred gain that is included; the treatment
of leased property used by a qualified opportunity zone busi-
ness; the use of qualified opportunity zone business property
in the qualified opportunity zone; the sourcing of gross income
to the qualified opportunity zone business; and the “reason-
able period” for a QOF to reinvest proceeds from the sale of
qualifying assets without paying a penalty. These proposed
regulations will affect QOFs and taxpayers that invest in QOFs.
Finding Lists begin on page ii.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing of-
ficial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of inter-
nal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rul-
ings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
May 20, 2019 Bulletin No. 2019–21

Part III.
Request for Comments on
Credit for Carbon Oxide
Sequestration
Notice 2019-32
SECTION 1. PURPOSE
The Department of the Treasury (Trea-
sury Department) and the Internal Reve-
nue Service (IRS) anticipate issuing reg-
ulations and other guidance to implement
the provisions of § 45Q of the Internal
Revenue Code, as amended by Section
41119 of the Bipartisan Budget Act of
2018 (BBA), Pub. L. No. 115-123 (Febru-
ary 9, 2018). This notice requests general
comments on issues arising under § 45Q,
as well as specific comments concerning
the secure geological storage and mea-
surement of qualified carbon oxide, the
recapture of the benefit of the credit for
carbon oxide sequestration, and other is-
sues described in section 3 of this notice.
Comments received in response to this
notice will help to inform development of
future regulations and other guidance im-
plementing § 45Q.
SECTION 2. BACKGROUND
Section 45Q was enacted by § 115 of
the Energy Improvement and Extension
Act of 2008, Division B of Pub. L. No.
110-343, 122 Stat. 3765, 3829 (October 3,
2008), to provide a credit for the seques-
tration of carbon dioxide. Section 45Q
was amended by § 1131 of the American
Recovery and Reinvestment Tax Act of
2009, Division B of Pub. L. 111-5, 123
Stat 115 (February 17, 2009) and more re-
cently by section 41119 of the Bipartisan
Budget Act of 2018 (BBA), Pub. L. No.
115-123 (February 9, 2018). As a result
of the modifications made by the BBA
amendment, the credit under § 45Q now
applies to the sequestration of “qualified
carbon oxide,” a broader term than qual-
ified carbon dioxide. The amount of the
credit is also increased for carbon oxide
captured with equipment originally placed
in service on or after the date of enactment
of the BBA.
Section 45Q(a)(1) allows a credit of
$20 per metric ton of qualified carbon
oxide (i) captured by the taxpayer using
carbon capture equipment which is orig-
inally placed in service at a qualified fa-
cility before the date of the enactment of
BBA, (ii) disposed of by the taxpayer in
secure geological storage, and (iii) not
used by the taxpayer as a tertiary injectant
in a qualified enhanced oil or natural gas
recovery project.
Section 45Q(a)(2) allows a credit of
$10 per metric ton of qualified carbon ox-
ide (i) captured by the taxpayer using car-
bon capture equipment which is original-
ly placed in service at a qualified facility
before the date of the enactment of BBA
and (ii) either (I) used by the taxpayer as
a tertiary injectant in a qualified enhanced
oil or natural gas recovery project and dis-
posed of by the taxpayer in secure geolog-
ical storage or (II) utilized by the taxpayer
in a manner described in § 45Q(f)(5).
Section 45Q(a)(3) allows a credit of the
applicable dollar amount (as determined
under § 45Q(b)(1)) per metric ton of
qualified carbon oxide (i) captured by the
taxpayer using carbon capture equipment
which is originally placed in service at a
qualified facility on or after the date of the
enactment of BBA during the 12-year pe-
riod beginning on the date the equipment
was originally placed in service, (ii) dis-
posed of by the taxpayer in secure geolog-
ical storage, and (iii) neither used as a ter-
tiary injectant in a qualified enhanced oil
or natural gas recovery project nor utilized
in a manner described in § 45Q(f)(5).
Section 45Q(a)(4) allows credit of the
applicable dollar amount (as determined
under § 45Q(b)(1)) per metric ton of
qualified carbon oxide (i) captured by the
taxpayer using carbon capture equipment
which is originally placed in service at a
qualified facility on or after the date of the
enactment of BBA, during the 12-year pe-
riod beginning on the date the equipment
was originally placed in service, and (ii)
either (I) used by the taxpayer as a tertia-
ry injectant in a qualified enhanced oil or
natural gas recovery project and disposed
of by the taxpayer in secure geological
storage or (II) utilized by the taxpayer in a
manner described in § 45Q(f)(5).
Section 45Q(b)(1)(A)(i)(1) provides
that, for any taxable year beginning in a
calendar year after 2016 and before 2027,
the applicable dollar amount for purposes
of § 45Q(a)(3) is an amount equal to the
dollar amount established by linear inter-
polation between $22.66 and $50 for each
calendar year during such period.
Section 45Q(b)(1)(A)(i)(II) provides
that, for any taxable year beginning in a
calendar year after 2016 and before 2027,
the applicable dollar amount for purposes
of § 45Q(a)(4) is an amount equal to the
dollar amount established by linear inter-
polation between $12.83 and $35 for each
calendar year during such period.
Section 45Q(b)(1)(A)(ii)(I) provides
that, for any taxable year beginning in a
calendar year after 2026, the applicable
dollar amount for purposes of § 45Q(a)(3)
shall be an amount equal to the product
of $50 and the inflation adjustment factor
for such calendar year determined under §
43(b)(3)(B) for such calendar year, deter-
mined by substituting “2025” for “1990.”
Section 45Q(b)(1)(A)(ii)(II) provides that,
for any taxable year beginning in a calen-
dar year after 2026, the applicable dollar
amount for purposes of § 45Q(a)(4) shall
be an amount equal to the product of $35
and the inflation adjustment factor for
such calendar year determined under §
43(b)(3)(B) for such calendar year, deter-
mined by substituting “2025” for “1990.”
Pursuant to § 45Q(b)(1)(B), the ap-
plicable dollar amount determined under
§ 45Q(b)(1)(A) is rounded to the nearest
cent.
Notice 2018-93, I.R.B. 2018-51 1041,
1042, sets forth the applicable dollar
amounts under § 45Q(b)(1) of the Internal
Revenue Code for purposes of determin-
ing the credit for carbon oxide sequestra-
tion under § 45Q(a)(3) and (a)(4).
Section 45Q(f)(1) provides that the
credit under § 45Q shall apply only with
respect to qualified carbon oxide the
capture and disposal, use, or utilization
of which is within (A) the United States
(within the meaning of § 638(1)), or (B) a
possession of the United States (within the
meaning of § 638(2)).
Section 45Q(f)(2) provides that the
Secretary, in consultation with the Admin-
Bulletin No. 2019–21 1187 May 20, 2019

istrator of the Environmental Protection
Agency (EPA), the Secretary of Energy,
and the Secretary of the Interior, shall
establish regulations for determining ade-
quate security measures for the geological
storage of qualified carbon oxide under §
45Q(a) such that the qualified carbon ox-
ide does not escape into the atmosphere.
Such term shall include storage at deep
saline formations, oil and gas reservoirs,
and unminable coal seams under such
conditions as the Secretary may determine
under such regulations.
Under § 45Q(f)(3)(A), except as pro-
vided in § 45Q(f)(3)(B) or in any regu-
lations prescribed by the Secretary, any
credit under § 45Q shall be attributable
to (i) in the case of qualified carbon oxide
captured using carbon capture equipment
which is originally placed in service at a
qualified facility before the date of the en-
actment of BBA, the person that captures
and physically or contractually ensures
the disposal, utilization, or use as a tertiary
injectant of such qualified carbon oxide,
and (ii) in the case of qualified carbon ox-
ide captured using carbon capture equip-
ment which is originally placed in service
at a qualified facility on or after the date
of the enactment of BBA, the person that
owns the carbon capture equipment and
physically or contractually ensures the
capture and disposal, utilization, or use as
a tertiary injectant of such qualified car-
bon oxide.
Under § 45Q(f)(3)(B), if the person
described in § 45Q(f)(3)(A) makes an
election in such time and manner as the
Secretary may prescribe by regulations,
the credit under § 45Q shall be allowable
to the person that disposes of the quali-
fied carbon oxide, utilizes the qualified
carbon oxide, or uses the qualified carbon
oxide as a tertiary injectant, and shall not
be allowable to the person described in §
45Q(f)(3)(A).
Section 45Q(f)(4) provides that the
Secretary shall, by regulations, provide
for recapturing the benefit of any credit
allowable under § 45Q(a) with respect to
any qualified carbon oxide which ceases
to be captured, disposed of, or used as a
tertiary injectant in a manner consistent
with the requirements of § 45Q.
Section 45Q(f)(5)(A) provides that for
purposes of § 45Q, utilization of qualified
carbon oxide means (i) the fixation of such
qualified carbon oxide through photosyn-
thesis or chemosynthesis, such as through
the growing of algae or bacteria, (ii) the
chemical conversion of such qualified
carbon oxide to a material or chemical
compound in which such qualified carbon
oxide is securely stored, or (iii) the use of
such qualified carbon oxide for any other
purpose for which a commercial market
exists (with the exception of use as a ter-
tiary injectant in a qualified enhanced oil
or natural gas recovery project), as deter-
mined by the Secretary.
Section 45Q(f)(5)(B)(i) provides that
for purposes of determining the amount
of qualified carbon oxide utilized by the
taxpayer under § 45Q(a)(2)(B)(ii) or
45Q(a)(4)(B)(ii), such amount shall be
equal to the metric tons of qualified carbon
oxide which the taxpayer demonstrates,
based upon an analysis of lifecycle green-
house gas emissions and subject to such
requirements as the Secretary, in consul-
tation with the Secretary of Energy and
the Administrator of the EPA, determines
appropriate, were (I) captured and perma-
nently isolated from the atmosphere, or
(II) displaced from being emitted into the
atmosphere, through use of a process de-
scribed in § 45Q(f)(5)(A).
Under § 45Q(f)(5)(B)(ii), for purposes
of § 45Q(f)(5)(B)(i), the term “lifecycle
greenhouse gas emissions” has the same
meaning given such term under subpara-
graph (H) of section 211(o)(1) of the
Clean Air Act (42 U.S.C. 7545(o)(1)), as
in effect on the date of the enactment of
BBA, except that “product” shall be sub-
stituted for “fuel” each place it appears in
such subparagraph.
Under § 45Q(f)(6)(A), for purposes of
§ 45Q, in the case of an applicable fa-
cility, for any taxable year in which such
facility captures not less than 500,000
metric tons of qualified carbon oxide
during the taxable year, the person de-
scribed in § 45Q(f)(3)(A)(ii) may elect to
have such facility, and any carbon cap-
ture equipment placed in service at such
facility, deemed as having been placed in
service on the date of the enactment of
BBA. Section 45Q(f)(6)(B) defines the
term “applicable facility” as a qualified
facility (i) which was placed in service
before the date of the enactment of BBA,
and (ii) for which no taxpayer claimed a
credit under § 45Q in regards to such fa-
cility for any taxable year ending before
the date of the enactment of BBA.
Under § 45Q(f)(7), in the case of any
taxable year beginning in a calendar year
after 2009, there shall be substituted for
each dollar amount contained in § 45Q(a)
(1) and (2) an amount equal to the product
of (A) such dollar amount, multiplied by
(B) the inflation adjustment factor for such
calendar year determined under § 43(b)(3)
(B) for such calendar year, determined by
substituting “2008” for “1990.”
Section 45Q(g) provides that in the case
of any carbon capture equipment placed in
service before the date of the enactment
of BBA, the credit under § 45Q shall ap-
ply with respect to qualified carbon oxide
captured using such equipment before
the end of the calendar year in which the
Secretary, in consultation with the Admin-
istrator of the Environmental Protection
Agency, certifies that, during the period
beginning after October 3, 2008, a total of
75,000,000 metric tons of qualified carbon
oxide have been taken into account in ac-
cordance with (1) § 45Q(a), as in effect on
the day before the date of the enactment of
BBA, and (2) § 45Q(a)(1) and (2).
Pursuant to § 45Q(h) the Secretary
may prescribe such regulations and other
guidance as may be necessary or appro-
priate to carry out this section, including
regulations or other guidance to (1) ensure
proper allocation under § 45Q(a) for qual-
ified carbon oxide captured by a taxpayer
during the taxable year ending after the
date of the enactment of BBA, and (2) de-
termine whether a facility satisfies the re-
quirements under § 45Q(d)(1) during such
taxable year.
SECTION 3. REQUEST FOR
COMMENTS
The Treasury Department and the
IRS request comments on issues arising
from the BBA amendments to § 45Q that
should be addressed in regulations and
other guidance. In addition to general
comments, the Treasury Department and
the IRS request comments that address the
following specific issues:
.01 IRS Form 8933, Carbon Oxide Se-
questration Credit, defines “Secure Geo-
logical Storage” as requiring approval by
the EPA of a Monitoring, Reporting and
Verification Plan (MRV Plan) submitted
May 20, 2019 1188 Bulletin No. 2019–21

Bulletin No. 2019–21 1189 May 20, 2019
by the operator of the storage facility or
tertiary injection project. Thus, meet-
ing the Form 8933 conditions would be
achieved by either receiving a Class II
UIC permit plus an approved MRV Plan,
or receiving a Class VI UIC permit plus an
approved MRV Plan.
UIC permits are required for all injec-
tion well operators. Class VI UIC opera-
tors must also get an EPA-approved MRV
plan as required under the Greenhouse
Gas Reporting Program (GHGRP), set
forth in 40 CFR Part 98. However, IRS
Form 8933 adds regulatory requirements
for Class II UIC permit holders (enhanced
oil recovery operations) who are not cur-
rently required to get an EPA-approved
MRV plan. As noted below, IRS is seeking
comment on whether there are alternatives
to this approach.
IRS Form 8933 also clarifies that the
annual amount of carbon oxide claimed
for the credit must be reconciled with
amounts reported to the EPA under its
GHGRP, subpart RR. See the EPA web-
site at www.epa.gov and Notice 2009-83,
2009-44 I.R.B. 588, for more information
on secure geological storage.
• Are there technical criteria different
from or in addition to those provided
in the EPA’s GHGRP that should be
used to demonstrate secure geological
storage? Are there existing guidelines,
standards, or regulations that could be
used to demonstrate secure geological
storage such as those developed by the
International Organization for Stan-
dardization (ISO)?
• Should EPA’s GHGRP rules contin-
ue to be the reporting requirements
for purposes of § 45Q, and should an
approved MRV Plan from the EPA be
received before any § 45Q credit can
be claimed? Are there any viable alter-
natives to the subpart RR reporting re-
quirements, such as third party, Depart-
ment of Energy, or State certification?
.02 Pursuant to § 45Q(f)(4), taxpayers
must recapture the benefit of any credit
allowable under § 45Q(a) with respect to
any qualified carbon oxide that ceases to
be captured, disposed of, or used as a ter-
tiary injectant in a manner consistent with
the requirements of § 45Q. What should
the standard be for triggering and measur-
ing recapture? How should the recapture
of the benefit of the credits relate to the
requirements of § 45Q and the issues con-
templated in this request for comments, in
particular the rules for secure geological
storage involving the disposal or use of
carbon oxide as a tertiary injectant?
.03 Is guidance needed to further clari-
fy terms and definitions appearing in
§ 45Q, such as carbon capture equip-
ment, qualified carbon oxide, direct air
capture facility, qualified facility, tertiary
injectant utilization, or lifecycle green-
house gas emissions?
.04 Is guidance required in defining
what types of utilization qualify as “fix-
ation of qualified carbon oxide through
photosynthesis or chemosysnthesis, such
as through the growing of algae or bacte-
ria” as described in § 45Q(f)(5)(A)?
.05 Is guidance required to establish
the boundaries for lifecycle emissions for
carbon oxide utilization to determine the
amount of qualified carbon oxide that is
“displaced from being emitted into the at-
mosphere” as described in in § 45Q(f)(5)
(B)?
.06 Under § 45Q(f)(3)(A), the credit is
attributable to the person that captures and
physically or contractually ensures the
disposal, utilization, or use of the qualified
carbon oxide as a tertiary injectant. The
Treasury Department and the IRS seek
comments on the types of contractual ar-
rangements that investors anticipate with
parties who capture or dispose or utilize
qualified CO. What are common terms of
contracts ensuring the disposal, utiliza-
tion, or use of qualified CO as a tertiary
injectant? What should result if such terms
are determined to be insufficient?
.07 What factors should be considered
in determining the time and manner of the
election under § 45Q(f)(3)(B) to transfer
the § 45Q credit to a person that disposes
of the qualified carbon oxide, utilizes the
qualified carbon oxide, or uses the qual-
ified carbon oxide as a tertiary injectant?
If such an election is made, what issues
should be considered regarding the trans-
fer of the § 45Q credit?
.08 What constitutes the beginning of
construction for purposes of § 45Q(d)?
.09 Is guidance needed concerning
structures in which project developers and
participating investors would be respected
as partners in a partnership generating a
§ 45Q credit? Further, is guidance
needed on allocating the credit and recap-
ture of the credit among the partners in a
partnership?
.10 What issues may arise when deter-
mining the amount of metric tons of qual-
ified carbon oxide utilized by the taxpayer
under § 45Q(a)(2)(B)(ii) or
§ 45Q(a)(4)(B)(ii), based upon an anal-
ysis of lifecycle greenhouse emissions and
subject to such requirements as the Sec-
retary, in consultation with the Secretary
of Energy and Administrator of the EPA,
determines appropriate, were (i) captured
and permanently isolated from the atmo-
sphere, or (ii) displaced from being emit-
ted into the atmosphere, through use of a
process described in § 45Q(f)(5)(A)?
SECTION 4. ADDRESS TO SEND
COMMENTS
.01 Comments may be submitted in
writing on or before Thursday, June 4,
2019. Taxpayers may submit comments
electronically via the Federal eRulemak-
ing Portal at www.regulations.gov (indi-
cate IRS and NOT-2019-32). Alternative-
ly, taxpayers may submit comments to:
CC:PA:LPD:PR (Notice 2019-32),
Room 5203, Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Washington, D.C., 20044
.02 Submissions may be hand-deliv-
ered Monday through Friday between the
hours of 8 a.m. and 4 p.m. to:
CC:PA:LPD:PR (Notice 2019-32),
Courier’s Desk, Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, D.C. 20224
Attn: CC:PA:LPD:PR
All comments received will be
available for public inspection on
www.regulations.gov.
SECTION 5. RELIANCE ON
NOTICE 2009-83
Notice 2009-83, 2009-44 I.R.B. 588,
which was modified by Notice 2011-25,
I.R.B. 2011-14 604, by removing section
4.07 of Notice 2009-83, provides guid-
ance on determining eligibility for the
former credit for carbon dioxide seques-
tration, the amount of the credit, and rules
regarding adequate security measures for
secure geological storage of carbon diox-

May 20, 2019 1190 Bulletin No. 2019–21
ide. Taxpayers may rely on Notice 2009-
83, as modified by Notice 2011-25, until
additional guidance is issued.
SECTION 6. DRAFTING
INFORMATION
The principal author of this notice is
David Selig of the Office of Associate
Chief Counsel (Passthroughs & Special
Industries). For further information re-
garding this notice, contact Mr. Selig at
(202) 317-6853 (not a toll-free number).

26 CFR 601.601: Rules and Regulations.
(Also Part I, §§ 25, 143)
Rev. Proc. 2019-21
SECTION 1. PURPOSE
This revenue procedure provides guid-
ance with respect to the United States and
area median gross income figures that are
to be used by issuers of qualified mort-
gage bonds, as defined in § 143(a) of the
Internal Revenue Code, and issuers of
mortgage credit certificates, as defined in
§ 25(c), in computing the income require-
ments described in § 143(f).
SECTION 2. BACKGROUND
.01 Section 103(a) provides that, ex-
cept as provided in § 103(b), gross income
does not include interest on any state or
local bond. Section 103(b)(1) provides
that § 103(a) shall not apply to any private
activity bond that is not a qualified bond
(within the meaning of § 141). Section
141(e) provides that the term “qualified
bond” includes any private activity bond
that (1) is a qualified mortgage bond, (2)
meets the applicable volume cap require-
ments under § 146, and (3) meets the ap-
plicable requirements under § 147.
.02 Section 143(a)(1) provides that the
term “qualified mortgage bond” means
a bond that is issued as part of a “qual-
ified mortgage issue”. Section 143(a)
(2)(A) provides that the term “qualified
mortgage issue” means an issue of one or
more bonds by a state or political subdivi-
sion thereof, but only if (i) all proceeds of
the issue (exclusive of issuance costs and
a reasonably required reserve) are to be
used to finance owner-occupied residenc-
es; (ii) the issue meets the requirements of
subsections (c), (d), (e), (f), (g), (h), (i),
and (m)(7) of § 143; (iii) the issue does
not meet the private business tests of para-
graphs (1) and (2) of § 141(b); and (iv)
with respect to amounts received more
than 10 years after the date of issuance,
repayments of $250,000 or more of prin-
cipal on financing provided by the issue
are used not later than the close of the first
semi-annual period beginning after the
date the prepayment (or complete repay-
ment) is received to redeem bonds that are
part of the issue.
.03 Section 143(f) imposes eligibil-
ity requirements concerning the maxi-
mum income of mortgagors for whom
financing may be provided by qualified
mortgage bonds. Section 25(c)(2)(A)(iii)
(IV) provides that recipients of mortgage
credit certificates must meet the income
requirements of § 143(f). Generally, un-
der §§ 143(f)(1) and 25(c)(2)(A)(iii)(IV),
these income requirements are met only
if all owner-financing under a qualified
mortgage bond and all certified indebt-
edness amounts under a mortgage credit
certificate program are provided to mort-
gagors whose family income is 115 per-
cent or less of the applicable median fam-
ily income. Under § 143(f)(6), the income
limitation is reduced to 100 percent of the
applicable median family income if there
are fewer than three individuals in the
family of the mortgagor.
.04 Section 143(f)(4) provides that the
term “applicable median family income”
means the greater of (A) the area median
gross income for the area in which the res-
idence is located, or (B) the statewide me-
dian gross income for the state in which
the residence is located.
.05 Section 143(f)(5) provides for an
upward adjustment of the income limita-
tions in certain high housing cost areas.
Under § 143(f)(5)(C), a high housing
cost area is a statistical area for which the
housing cost/income ratio is greater than
1.2. The housing cost/income ratio is de-
termined under § 143(f)(5)(D) by dividing
(a) the applicable housing price ratio by
(b) the ratio that the area median gross in-
come bears to the median gross income for
the United States. The applicable housing
price ratio is the new housing price ratio
(new housing average purchase price for
the area divided by the new housing aver-
age purchase price for the United States)
or the existing housing price ratio (exist-
ing housing average area purchase price
divided by the existing housing average
purchase price for the United States),
whichever results in the housing cost/in-
come ratio being closer to 1. This income
adjustment applies only to bonds issued,
and nonissued bond amounts elected, after
December 31, 1988. See § 4005(h) of the
Technical and Miscellaneous Revenue Act
of 1988, 1988-3 C.B. 1, 311 (1988).
.06 The Department of Housing and
Urban Development (HUD) has comput-
ed the median gross income for the Unit-
ed States, the states, and statistical areas
within the states. The income information
was released to the HUD regional offices
on April 24, 2019, and may be obtained
by calling the HUD reference service at
1-800-245-2691. The income information
is also available at HUD’s World Wide
Web site, http://www.huduser.gov/portal/
datasets/il.html, which provides a menu
from which you may select the year and
type of data of interest.
.07 The most recent nationwide aver-
age purchase prices and average area pur-
chase price safe harbor limitations were
published on April 08, 2019, in Rev. Proc.
2019-14, 2019-15 I.R.B. 948.
SECTION 3. APPLICATION
.01 When computing the income re-
quirements of § 143(f), issuers of quali-
fied mortgage bonds and mortgage credit
certificates must use either (1) the median
gross income for the United States, the
states, and statistical areas within the
states, as released to the HUD regional
offices on April 01, 2018, or (2) the me-
dian gross income for the United States,
the states, and statistical areas within the
states, as released to the HUD regional of-
fices on April 24, 2019.
.02 If an issuer uses the median gross
income for the United States, the states,
and statistical areas within the states, as
released to the HUD regional offices on
April 01, 2018, to compute the housing
cost/income ratio under § 143(f)(5), the is-
suer must use the median gross income for
the United States, the states, and statistical
areas within the states, as released to the

Bulletin No. 2019–21 1191 May 20, 2019
HUD regional offices on April 01, 2018,
for all purposes under § 143(f). Likewise,
if an issuer uses the median gross income
for the United States, the states, and sta-
tistical areas within the states, as released
to the HUD regional offices on April 24,
2019, to compute the housing cost/income
ratio under § 143(f)(5), the issuer must
use the median gross income for the Unit-
ed States, the states, and statistical areas
within the states, as released to the HUD
regional offices on April 24, 2019, for all
purposes under § 143(f).
SECTION 4. EFFECT ON OTHER
REVENUE PROCEDURES
.01 Rev. Proc. 2018-33, 2018-22 I.R.B.
734, is obsolete except as provided in §§
3.01, 3.02, or 5.01 of this revenue proce-
dure.
.02 This revenue procedure does not
affect the effective date provisions of Rev.
Rul. 86-124, 1986-2 C.B. 27. Those effec-
tive date provisions will remain operative
at least until the Service publishes a new
revenue ruling that conforms the approach
to effective dates set forth in Rev. Rul. 86-
124 to the general approach taken in this
revenue procedure.
SECTION 5. EFFECTIVE DATES
.01 Issuers must use the United States
and area median gross income figures
specified in § 3.01 of this revenue pro-
cedure for commitments to provide fi-
nancing that are made, or (if the purchase
precedes the financing commitment) for
residences that are purchased, in the pe-
riod that begins on April 24, 2019, and
ends on the date when these United States
and area median gross income figures are
rendered obsolete by a new revenue pro-
cedure.
DRAFTING INFORMATION
The principal author of this revenue
procedure is David White of the Office
of Associate Chief Counsel (Financial In-
stitutions & Products). For further infor-
mation regarding this revenue procedure
contact Mr. White at (202) 317-6980 (not
a toll-free number).

May 20, 2019 1192 Bulletin No. 2019–21
Part IV.
Deletions From Cumulative
List of Organizations,
Contributions to Which are
Deductible Under Section
170 of the Code
Announcement 2019-04
The Internal Revenue Service has re-
voked its determination that the organiza-
tions listed below qualify as organizations
described in sections 501(c)(3) and 170(c)
(2) of the Internal Revenue Code of 1986.
Generally, the IRS will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the IRS is not pre-
cluded from disallowing a deduction for
any contributions made after an organi-
zation ceases to qualify under section
170(c)(2) if the organization has not
timely filed a suit for declaratory judg-
ment under section 7428 and if the con-
tributor (1) had knowledge of the revoca-
tion of the ruling or determination letter,
(2) was aware that such revocation was
imminent, or (3) was in part responsible
for or was aware of the activities or omis-
sions of the organization that brought
about this revocation.
If on the other hand a suit for declarato-
ry judgment has been timely filed, contri-
butions from individuals and organizations
described in section 170(c)(2) that are oth-
erwise allowable will continue to be de-
ductible. Protection under section 7428(c)
would begin on May 20, 2019 and would
end on the date the court first determines
the organization is not described in section
170(c)(2) as more particularly set for in
section 7428(c)(1). For individual contrib-
utors, the maximum deduction protected is
$1,000, with a husband and wife treated as
one contributor. This benefit is not extend-
ed to any individual, in whole or in part,
for the acts or omissions of the organization
that were the basis for revocation.
NAME OF ORGANIZATIONEffective Date of
Revocation
LOCATION
American Medical Missionary Care Inc1/1/2014Alpharetta, GA
Aromatherapy Foundation of Maui1/1/2015Makawao, HI
Atlanta Child Therapy Inc1/1/2015Kennesaw, GA
Blanket Depot1/1/2016Hazlet, NJ
Bullard-Pleasant Grove Cemetery Society1/1/2015Eclectic, AL
Callis Educational Fund1/1/2014Chicago, IL
Cancer Fund of America Inc1/1/2014Knoxville, TN
Center for Advancement and Preservation of American Music Inc1/1/2014Leawood, KS
Children’s Cancer Fund of America1/1/2014Nashville, TN
Christian City Convalescent Center Inc7/1/2013Union City, GA
Community Worship Church8/1/2012Portland, OR
Consumer Energy Advocates1/1/2012Los Angeles, CA
Covington County Hospital1/1/2010Collins, MS
Covina Center for the Performing Arts1/1/2015Covina, CA
C-R Productions Inc7/1/2014Cohoes, NY
Dental Associates of Woodhull PC7/1/2014New York, NY
Deptford TWP KP Association a NJ Non-profit Corp1/1/2015Woodbury Heights, NJ
Dog Days Rescue1/1/2015Kennesaw, GA
Elmer Bankus Memorial Scholarship Fund7/1/2013Wilsonville, OR
eSponsor Now Inc1/1/2014Concord, CA

Bulletin No. 2019–21 1193 May 20, 2019
Notice of Proposed
Rulemaking
Investing in Qualified
Opportunity Funds
REG-120186-18
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing; partial withdrawal of a notice of pro-
posed rulemaking.
SUMMARY: This document contains pro-
posed regulations that provide guidance
under new section 1400Z-2 of the Internal
Revenue Code (Code) relating to gains that
may be deferred as a result of a taxpayer’s
investment in a qualified opportunity fund
(QOF), as well as special rules for an in-
vestment in a QOF held by a taxpayer for at
least 10 years. This document also contains
proposed regulations that update portions
of previously proposed regulations under
section 1400Z-2 to address various issues,
including: the definition of “substantial-
ly all” in each of the various places it ap-
pears in section 1400Z-2; the transactions
that may trigger the inclusion of gain that a
taxpayer has elected to defer under section
1400Z-2; the timing and amount of the de-
ferred gain that is included; the treatment of
leased property used by a qualified oppor-
tunity zone business; the use of qualified
opportunity zone business property in the
qualified opportunity zone; the sourcing of
gross income to the qualified opportunity
zone business; and the “reasonable period”
for a QOF to reinvest proceeds from the
sale of qualifying assets without paying a
penalty. These proposed regulations will
affect QOFs and taxpayers that invest in
QOFs.
DATES: Written (including electronic)
comments must be received by July 1,
2019. Outlines of topics to be discussed
at the public hearing scheduled for July 9,
2019, at 10 a.m. must be received by July
1, 2019. The public hearing will be held
at the New Carrollton Federal Building
at 5000 Ellin Road in Lanham, Maryland
20706.
ADDRESSES: Submit electronic sub-
missions via the Federal eRulemaking
Portal at www.regulations.gov (indicate
IRS and REG-120186-18) by following
the online instructions for submitting
comments. Once submitted to the Federal
eRulemaking Portal, comments cannot be
edited or withdrawn. The Department of
the Treasury (Treasury Department) and
the IRS will publish for public availability
any comment received to its public dock-
et, whether submitted electronically or in
hard copy. Send hard copy submissions
to: CC:PA:LPD:PR (REG-120186-18),
room 5203, Internal Revenue Service, PO
Box 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG-120186-18),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Washing-
ton, DC 20224.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Erika C. Reigle of the Of-
fice of Associate Chief Counsel (Income
Tax and Accounting), (202) 317-7006,
and Kyle C. Griffin of the Office of As-
sociate Chief Counsel (Income Tax and
Accounting), (202) 317-4718; concern-
ing the submission of comments, the
hearing, or to be placed on the building
access list to attend the hearing, Regina
L. Johnson, (202) 317-6901 (not toll-
free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed regu-
lations under section 1400Z-2 of the Code
that amend the Income Tax Regulations
(26 CFR part 1). Section 13823 of the Tax
Cuts and Jobs Act, Public Law 115-97, 131
Stat. 2054, 2184 (2017) (TCJA), amend-
ed the Code to add sections 1400Z-1 and
1400Z-2. Sections 1400Z-1 and 1400Z-2
seek to encourage economic growth and
investment in designated distressed com-
munities (qualified opportunity zones) by
providing Federal income tax benefits to
taxpayers who invest new capital in busi-
nesses located within qualified opportuni-
ty zones through a QOF.
Section 1400Z-1 provides the proce-
dural rules for designating qualified op-
portunity zones and related definitions.
Section 1400Z-2 provides two main tax
incentives to encourage investment in
qualified opportunity zones. First, it al-
lows for the deferral of inclusion in gross
income of certain gain to the extent that
a taxpayer elects to invest a correspond-
ing amount in a QOF. Second, it allows
for the taxpayer to elect to exclude from
gross income the post-acquisition gain on
investments in the QOF held for at least
10 years. Additionally, with respect to
the deferral of inclusion in gross income
of certain gain invested in a QOF, section
1400Z-2 permanently excludes a portion
of such deferred gain if the corresponding
investment in the QOF is held for five or
seven years.
On October 29, 2018, the Department
of the Treasury (Treasury Department)
and the IRS published in the Federal Reg-
ister (83 FR 54279) a notice of proposed
rulemaking (REG-115420-18) providing
guidance under section 1400Z-2 of the
Code for investing in qualified oppor-
tunity funds (83 FR 54279 (October 29,
2018)). A public hearing on 83 FR 54279
(October 29, 2018) was held on February
14, 2019. The Treasury Department and
the IRS continue to consider the com-
ments received on 83 FR 54279 (October
29, 2018), including those provided at the
public hearing.
As is more fully explained in the Ex-
planation of Provisions, the proposed
regulations contained in this notice of
proposed rulemaking describe and clar-
ify requirements relating to investing in
QOFs not addressed in 83 FR 54279 (Oc-
tober 29, 2018). Specifically, and as was
indicated in 83 FR 54279 (October 29,
2018), these proposed regulations address
the meaning of “substantially all” in each
of the various places where it appears in
section 1400Z-2; the reasonable period
for a QOF to reinvest proceeds from the
sale of qualifying assets without paying a
penalty pursuant to section 1400Z-2(e)(4)
(B); the transactions that may trigger the
inclusion of gain that has been deferred
under a section 1400Z-2(a) election; and
other technical issues with regard to in-
vesting in a QOF. Because portions of 83
FR 54279 (October 29, 2018) contained
certain placeholder text, included less

May 20, 2019 1194 Bulletin No. 2019–21
detailed guidance in certain areas that
merely cross-referenced statutory rules,
or lacked sufficient detail to address these
issues, this notice of proposed rulemak-
ing withdraws paragraphs (c)(4)(i), (c)(5)
and (6), (d)(2)(i)(A), (d)(2)(ii) and (iii),
(d)(5)(i), and (d)(5)(ii)(B) of proposed
§1.1400Z2(d)-1 of 83 FR 54279 (October
29, 2018), and proposes in their place new
paragraphs (c)(4)(i), (c)(5) and (6), (d)(2)
(i)(A), (d)(2)(ii) and (iii), (d)(5)(i), and (d)
(5)(ii)(B) of proposed §1.1400Z2(d)-1.
The Treasury Department and the IRS
welcome suggestions as to other issues
that should be addressed to further clarify
the rules under section 1400Z-2, as well as
comments on all aspects of these proposed
regulations.
Within a few months of the publication
of these proposed regulations, the Trea-
sury Department and the IRS expect to
address the administrative rules under sec-
tion 1400Z-2(f) applicable to a QOF that
fails to maintain the required 90 percent
investment standard of section 1400Z-2(d)
(1), as well as information-reporting re-
quirements for an eligible taxpayer under
section 1400Z-2, in separate regulations,
forms, or publications.
In addition, the Treasury Depart-
ment and the IRS anticipate revising the
Form 8996 (OMB Control number 1545-
0123) for tax years 2019 and following.
As provided for under the rules set forth in
83 FR 54279 (October 29, 2018), a QOF
must file a Form 8996 with its Federal in-
come tax return for initial self-certification
and for annual reporting of compliance
with the 90-Percent Asset Test in section
1400Z–2(d)(1). Subject to tax administra-
tion limitations, the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)), and oth-
er requirements under law, it is expected
that proposed revisions to the Form 8996
could require additional information such
as (1) the employer identification number
(EIN) of the qualified opportunity zone
businesses owned by a QOF and (2) the
amount invested by QOFs and qualified
opportunity zone businesses located in
particular Census tracts designated as
qualified opportunity zones. In that regard,
consistent with Executive Order 13853
of December 12, 2018, Establishing the
White House Opportunity and Revitaliza-
tion Council (EO 13853), published in the
Federal Register (83 FR 65071) on De-
cember 18, 2018, and concurrent with the
publication of these proposed regulations,
the Treasury Department and the IRS are
publishing a request for information (RFI)
under this subject in the Notices section
of this edition of the Federal Register,
with a docket for comments on www.reg-
ulations.gov separate from that for this
notice of proposed rulemaking, requesting
detailed comments with respect to meth-
odologies for assessing relevant aspects of
investments held by QOFs throughout the
United States and at the State, Territorial,
and Tribal levels, including the composi-
tion of QOF investments by asset class,
the identification of designated qualified
opportunity zone Census tracts that have
received QOF investments, and the im-
pacts and outcomes of the investments in
those areas on economic indicators, in-
cluding job creation, poverty reduction,
and new business starts. EO 13853 charges
the White House Opportunity and Revi-
talization Council, of which the Treasury
Department is a member, to determine
“what data, metrics, and methodologies
can be used to measure the effectiveness
of public and private investments in urban
and economically distressed communities,
including qualified opportunity zones.”
See the requests for comments in the RFI
regarding these or other topics regarding
methodologies for assessing the impacts
of sections 1400Z-1 and 1400Z-2 on qual-
ified opportunity zones throughout the
Nation.
Explanation of Provisions
I. Qualified Opportunity Zone Business
Property
A. Definition of Substantially All for
Purposes of Sections 1400Z-2(d)(2)
and (d)(3)
The proposed rule published at 83 FR
54279 (October 29, 2018) clarified that,
for purposes of section 1400Z-2(d)(3)(A)
(i), for determining whether an entity is a
qualified opportunity zone business, the
threshold to determine whether a trade or
business satisfies the substantially all test
is 70 percent. See 83 FR 54279, 54294
(October 29, 2018). If at least 70 percent
of the tangible property owned or leased
by a trade or business is qualified oppor-
tunity zone business property (as defined
in section 1400Z-2(d)(3)(A)(i)), proposed
§1.1400Z2(d)-1(d)(3)(i) in 83 FR 54279
(October 29, 2018) provides that the trade
or business is treated as satisfying the
substantially all requirement in section
1400Z-2(d)(3)(A)(i).
The phrase substantially all is also
used throughout section 1400Z-2(d)(2).
The phrase appears in section 1400Z-2(d)
(2)(D)(i)(III), which establishes the con-
ditions for property to be treated as qual-
ified opportunity zone business property
(“during substantially all of the qualified
opportunity fund’s holding period for
such property, substantially all of the use
of such property was in a qualified op-
portunity zone”). The phrase also appears
in sections 1400Z-2(d)(2)(B)(i)(III) and
1400Z-2(d)(2)(C)(iii), which require that
during substantially all of the QOF’s
holding period for qualified opportunity
zone stock or qualified opportunity zone
partnership interests, such corporation or
partnership qualified as a qualified oppor-
tunity zone business.
The proposed rule published at 83 FR
54279 (October 29, 2018) reserved the
proposed meaning of the phrase substan-
tially all as used in section 1400Z-2(d)(2).
The statute neither defines the meaning of
substantially all for the QOF’s holding pe-
riod for qualified opportunity zone stock,
qualified opportunity zone partnership
interests, and qualified opportunity zone
business property, nor defines it for pur-
poses of testing the use of qualified oppor-
tunity zone business property in a qualified
opportunity zone. The Treasury Depart-
ment and the IRS have received numerous
questions and comments on the threshold
limits of substantially all for purposes of
section 1400Z-2(d)(2). Many commenters
suggested that a lower threshold for the
use requirement of section 1400Z-2(d)
(2)(D)(i)(III) would allow a variety of
businesses to benefit from qualifying in-
vestments in QOFs. Other commentators
suggested that too low a threshold would
negatively impact the low-income com-
munities that section 1400Z-2 is intended
to benefit, because the tax-incentivized in-
vestment would not be focused sufficient-
ly on these communities.
Consistent with 83 FR 54279 (Octo-
ber 29, 2018) these proposed regulations
provide that, in testing the use of qualified

Bulletin No. 2019–21 1195 May 20, 2019
opportunity zone business property in a
qualified opportunity zone, as required in
section 1400Z-2(d)(2)(D)(i)(III), the term
substantially all in the context of “use”
is 70 percent. With respect to owned or
leased tangible property, these proposed
regulations provide identical requirements
for determining whether a QOF or qual-
ified opportunity zone business has used
substantially all of such tangible proper-
ty within the qualified opportunity zone
within the meaning of section 1400Z-2(d)
(2)(D)(i)(III). Whether such tangible
property is owned or leased, these pro-
posed regulations propose that the sub-
stantially all requirement regarding “use”
is satisfied if at least 70 percent of the use
of such tangible property is in a qualified
opportunity zone.
As discussed in the preamble to 83 FR
54279 (October 29, 2018) a compounded
use of substantially all must be interpret-
ed in a manner consistent with the intent
of Congress. Consequently, the Treasury
Department and the IRS have determined
that a higher threshold is necessary in the
holding period context to preserve the in-
tegrity of the statute and for the purpose of
focusing investment in designated quali-
fied opportunity zones. Thus, the proposed
regulations provide that the term substan-
tially all as used in the holding period con-
text in sections 1400Z-2(d)(2)(B)(i)(III),
1400Z-2(d)(2)(C)(iii), and 1400Z-2(d)(2)
(D)(i)(III) is defined as 90 percent. Using
a percentage threshold that is higher than
70-percent in the holding period context
is warranted as taxpayers are more easily
able to control and determine the period
for which they hold property. In addition,
given the lower 70-percent thresholds for
testing both the use of tangible property
in the qualified opportunity zone and the
amount of owned and leased tangible
property of a qualified opportunity zone
business that must be qualified opportu-
nity zone business property, applying a
70-percent threshold in the holding period
context can result in much less than half
of a qualified opportunity zone business’s
tangible property being used in a qualified
opportunity zone. Accordingly, the Trea-
sury Department and the IRS have deter-
mined that using a threshold lower than
90 percent in the holding period context
would reduce the amount of investment
in qualified opportunity zones to levels
inconsistent with the purposes of section
1400Z-2.
The Treasury Department and the IRS
request comments on these proposed defi-
nitions of substantially all for purposes of
section 1400Z-2(d)(2).
B. Original Use of Tangible Property
Acquired by Purchase
In 83 FR 54279 (October 29, 2018) the
Treasury Department and the IRS specifi-
cally solicited comments on the definition
of the “original use” requirement in sec-
tion 1400Z-2(d)(2)(D)(i)(II) for both real
property and tangible personal property
and reserved a section of the proposed
regulations to define the phrase original
use. The requirement that tangible prop-
erty acquired by purchase have its “orig-
inal use” in a qualified opportunity zone
commencing with a qualified opportunity
fund or qualified opportunity zone busi-
ness, or be substantially improved, in or-
der to qualify for tax benefits is also found
in other sections of the Code. Under the
now-repealed statutory frameworks of
both section 1400B (related to the DC
Zone) and section 1400F (related to Re-
newal Communities), qualified property
for purposes of those provisions was re-
quired to have its original use in a zone
or to meet the requirements of substantial
improvement as defined under those pro-
visions. The Treasury Department and the
IRS have received numerous questions on
the meaning of “original use.” Examples
of these questions include: May tangible
property be previously used property, or
must it be new property? Does property
previously placed in service in the quali-
fied opportunity zone for one use, but now
placed in service for a different use, qual-
ify? May property used in the qualified
opportunity zone be placed in service in
the same qualified opportunity zone by an
acquiring, unrelated taxpayer?
After carefully considering the com-
ments and questions received, the pro-
posed regulations generally provide that
the “original use” of tangible property
acquired by purchase by any person com-
mences on the date when that person or
a prior person first places the property in
service in the qualified opportunity zone
for purposes of depreciation or amortiza-
tion (or first uses the property in the qual-
ified opportunity zone in a manner that
would allow depreciation or amortization
if that person were the property’s own-
er). Thus, tangible property located in the
qualified opportunity zone that is depreci-
ated or amortized by a taxpayer other than
the QOF or qualified opportunity zone
business would not satisfy the original use
requirement of section 1400Z-2(d)(2)(D)
(i)(II) under these proposed regulations.
Conversely, tangible property (other than
land) located in the qualified opportuni-
ty zone that has not yet been depreciat-
ed or amortized by a taxpayer other than
the QOF or qualified opportunity zone
business would satisfy the original use
requirement of section 1400Z-2(d)(2)(D)
(i)(II) under these proposed regulations.
However, the proposed regulations clari-
fy that used tangible property will satisfy
the original use requirement with respect
to a qualified opportunity zone so long
as the property has not been previously
used (that is, has not previously been used
within that qualified opportunity zone in a
manner that would have allowed it to de-
preciated or amortized) by any taxpayer.
(For special rules concerning the origi-
nal use requirement for assets acquired
in certain transactions to which section
355 or section 381 applies, see proposed
§1.1400Z2(b)-1(d)(2) in this notice of
proposed rulemaking.)
The Treasury Department and the IRS
have also studied the extent to which us-
age history of vacant structures or other
tangible property (other than land) pur-
chased after 2017 but previously placed
in service within the qualified opportunity
zone may be disregarded for purposes of
the original use requirement if the struc-
ture or other property has not been utilized
or has been abandoned for some minimum
period of time and received multiple pub-
lic comments regarding this issue. Several
commenters suggested establishing an “at
least one-year” vacancy period threshold
similar to that employed in §1.1394-1(h)
to determine whether property meets the
original use requirement within the mean-
ing of section 1397D (defining qualified
zone property) for purposes of section
1394 (relating to the issuance of enterprise
zone facility bonds). Given the differ-
ent operation of those provisions and the
potential for owners of property already
situated in a qualified opportunity zone

May 20, 2019 1196 Bulletin No. 2019–21
to intentionally cease occupying proper-
ty for 12 months in order to increase its
marketability to potential purchasers after
2017, other commenters proposed longer
vacancy thresholds ranging to five years.
The Treasury Department and the IRS are
proposing that where a building or other
structure has been vacant for at least five
years prior to being purchased by a QOF
or qualified opportunity zone business,
the purchased building or structure will
satisfy the original use requirement. Com-
ments are requested on this proposed ap-
proach, including the length of the vacan-
cy period and how such a standard might
be administered and enforced.
In addition, in response to questions
about a taxpayer’s improvements to leased
property, the proposed regulations pro-
vide that improvements made by a lessee
to leased property satisfy the original use
requirement and are considered purchased
property for the amount of the unadjusted
cost basis of such improvements as deter-
mined in accordance with section 1012.
As provided in Rev. Rul. 2018-29,
2018 I.R.B 45, and these proposed reg-
ulations, if land that is within a qualified
opportunity zone is acquired by purchase
in accordance with section 1400Z-2(d)
(2)(D)(i)(I), the requirement under sec-
tion 1400Z-2(d)(2)(D)(i)(II) that the
original use of tangible property in the
qualified opportunity zone commence
with a QOF is not applicable to the land,
whether the land is improved or unim-
proved. Likewise, unimproved land that
is within a qualified opportunity zone and
acquired by purchase in accordance with
section 1400Z-2(d)(2)(D)(i)(I) is not re-
quired to be substantially improved within
the meaning of section 1400Z-2(d)(2)(D)
(i)(II) and (d)(2)(D)(ii). Multiple public
comments were received suggesting that
not requiring the basis of land itself to be
substantially improved within the mean-
ing of section 1400Z-2(d)(2)(D)(i)(II) and
(d)(2)(D)(ii) would lead to speculative
land purchasing and potential abuse of
section 1400Z-2.
The Treasury Department and the IRS
have considered these comments. Under
section 1400Z-2(d)(2)(D)(i)(II) and these
proposed regulations, land can be treated
as qualified opportunity zone business
property for purposes of section 1400Z-
2 only if it is used in a trade or business
of a QOF or qualified opportunity zone
business. As described in part III.D. of
this Explanation of Provisions, only ac-
tivities giving rise to a trade or business
within the meaning of section 162 may
qualify as a trade or business for pur-
poses of section 1400Z-2; the holding of
land for investment does not give rise to
a trade or business and such land could
not be qualified opportunity zone business
property. Moreover, land is a crucial busi-
ness asset for numerous types of operating
trades or businesses aside from real estate
development, and the degree to which it
is necessary or useful for taxpayers seek-
ing to grow their businesses to improve
the land that their businesses depend on
will vary greatly by region, industry, and
particular business. In many cases, regu-
lations that imposed a requirement on all
types of trades or businesses to substan-
tially improve (within the meaning of sec-
tion 1400Z-2(d)(2)(D)(i)(II) and (d)(2)(D)
(ii)) land that is used by them may encour-
age noneconomic, tax-motivated business
decisions, or otherwise effectively prevent
many businesses from benefitting under
the opportunity zone provisions. Such
rules also would inject a significant de-
gree of additional complexity into these
proposed regulations.
Nevertheless, the Treasury Department
and the IRS recognize that, in certain in-
stances, the treatment of unimproved land
as qualified opportunity zone business
property could lead to tax results that are
inconsistent with the purposes of section
1400Z-2. For example, a QOF’s acquisi-
tion of a parcel of land currently utilized
entirely by a business for the production
of an agricultural crop, whether active or
fallow at that time, potentially could be
treated as qualified opportunity zone busi-
ness property without the QOF investing
any new capital investment in, or increas-
ing any economic activity or output of,
that parcel. In such instances, the Treasury
Department and the IRS have determined
that the purposes of section 1400Z-2
would not be realized, and therefore the
tax incentives otherwise provided under
section 1400Z-2 should not be available.
If a significant purpose for acquiring such
unimproved land was to achieve that inap-
propriate tax result, the general anti-abuse
rule set forth in proposed §1.1400Z2(f)-
1(c) (and described further in part X of this
Explanation of Provisions) would apply to
treat the acquisition of the unimproved
land as an acquisition of non-qualifying
property for section 1400Z-2 purposes.
The Treasury Department and the IRS
request comments on whether anti-abuse
rules under section 1400Z-2(e)(4)(c), in
addition to the general anti-abuse rule,
are needed to prevent such transactions or
“land banking” by QOFs or qualified op-
portunity zone businesses, and on possible
approaches to prevent such abuse.
Conversely, if real property, other than
land, that is acquired by purchase in accor-
dance with section 1400Z-2(d)(2)(D)(i)(I)
had been placed in service in the qualified
opportunity zone by a person other than
the QOF or qualified opportunity zone
business (or first used in a manner that
would allow depreciation or amortization
if that person were the property’s own-
er), it must be substantially improved to
be considered qualified opportunity zone
business property. Substantial improve-
ment by the QOF or qualified opportuni-
ty zone business for real property, other
than land, is determined by applying the
requirements for substantial improvement
of tangible property acquired by purchase
set forth in section 1400Z-2(d)(2)(D)(ii).
The Treasury Department and the IRS
request comments on these proposed rules
regarding the original use requirement
generally, including whether certain cas-
es may warrant additional consideration.
Comments are also requested as to wheth-
er the ability to treat such prior use as dis-
regarded for purposes of the original use
requirement should depend on whether
the property has been fully depreciated for
Federal income tax purposes, or whether
other adjustments for any undepreciated
or unamortized basis of such property
would be appropriate. The Treasury De-
partment and the IRS are also studying the
circumstances under which tangible prop-
erty that had not been purchased but has
been overwhelmingly improved by a QOF
or a qualified opportunity zone business
may be considered as satisfying the origi-
nal use requirement and request comment
regarding possible approaches.
Under these proposed regulations,
the determination of whether the sub-
stantial improvement requirement of
section 1400Z-2(d)(2)(D)(ii) is satisfied
for tangible property that is purchased

Bulletin No. 2019–21 1197 May 20, 2019
is made on an asset-by-asset basis. The
Treasury Department and the IRS have
considered the possibility, however, that
an asset-by-asset approach might be oner-
ous for certain types of businesses. For
example, the granular nature of an as-
set-by-asset approach might cause operat-
ing businesses with significant numbers of
diverse assets to encounter administrative-
ly difficult asset segregation and tracking
burdens, potentially creating traps for the
unwary. As an alternative, the Treasury
Department and the IRS have contemplat-
ed the possibility of applying an aggregate
standard for determining compliance with
the substantial improvement requirement,
potentially allowing tangible property to
be grouped by location in the same, or
contiguous, qualified opportunity zones.
Given that an aggregate approach could
provide additional compliance flexibility,
while continuing to incentivize high-qual-
ity investments in qualified opportunity
zones, the Treasury Department and the
IRS request comments on the potential
advantages, as well as disadvantages, of
adopting an aggregate approach for sub-
stantial improvement.
Additional comments are requested re-
garding the application of the substantial
improvement requirement with respect
to tangible personal property acquired by
purchase that is not capable of being sub-
stantially improved (for example, equip-
ment that is nearly new but was previously
used in the qualified opportunity zone and
the cost of fully refurbishing the equip-
ment would not result in a doubling of the
basis of such property). Specifically, com-
ments are requested regarding whether
the term “property” in section 1400Z-2(d)
(2)(D)(ii) should be interpreted in the ag-
gregate to permit the purchase of items
of non-original use property together
with items of original use property that
do not directly improve such non-origi-
nal use property to satisfy the substantial
improvement requirement. In that regard,
comments are requested as to the extent to
which such treatment may be appropriate
given that such treatment could cause a
conflict between the independent original
use requirement of section 1400Z-2(d)(2)
(D)(i)(II) and the independent substan-
tial improvement requirement of sec-
tion 1400Z-2(d)(2)(D)(i)(II) by reason of
the definition of substantial improvement
under section 1400Z-2(d)(2)(D)(ii). Com-
ments are also requested regarding the
treatment of purchases of multiple items
of separate tangible personal property for
purposes of section 1400Z-2(d)(2)(D)(i)
(II) that have the same applicable depre-
ciation method, applicable recovery peri-
od, and applicable convention, and which
are placed in service in the same year by
a QOF or qualified opportunity zone busi-
ness in one or more general asset accounts
within the meaning of section 168(i) and
§1.168(i)-1.
C. Safe Harbor for Testing Use of
Inventory in Transit
Section 1400Z-2(d)(2)(D)(i)(III) pro-
vides that qualified opportunity zone busi-
ness property means tangible property
used in a trade or business of the QOF if,
during substantially all of the QOF’s hold-
ing period for such property, substantially
all of the use of such property was in a
qualified opportunity zone. Commentators
have inquired how inventory will be treat-
ed for purposes of determining whether
substantially all of the tangible property
is used in the qualified opportunity zone.
Commentators expressed concern that
inventory in transit on the last day of the
taxable year of a QOF would be count-
ed against the QOF when determining
whether the QOF has met the 90-percent
ownership requirement found in section
1400Z-2(d)(1) (90-percent asset test).
The proposed regulations clarify that
inventory (including raw materials) of a
trade or business does not fail to be used
in a qualified opportunity zone solely be-
cause the inventory is in transit from a
vendor to a facility of the trade or business
that is in a qualified opportunity zone, or
from a facility of the trade or business that
is in a qualified opportunity zone to cus-
tomers of the trade or business that are not
located in a qualified opportunity zone.
Comments are requested as to whether
the location of where inventory is ware-
housed should be relevant and whether in-
ventory (including raw materials) should
be excluded from both the numerator and
denominator of the 70-percent test for
QOZBs.
The Treasury Department and the IRS
request comments on the proposed rules
regarding the determination of whether in-
ventory, as well as other property, is used
in a qualified opportunity zone, including
whether certain cases or types of property
may warrant additional consideration.
II. Treatment of Leased Tangible Property
As noted previously, sec-
tion 1400Z-2(d)(3)(A)(i) provides that a
qualified opportunity zone business is a
trade or business in which, among other
things, substantially all (that is, at least 70
percent) of the tangible property owned
or leased by the taxpayer is “qualified op-
portunity zone business property” with-
in the meaning of section 1400Z-2(d)(2)
(D), determined by substituting “qualified
opportunity fund” with “qualified op-
portunity zone business” each place that
such term appears. Taking into account
this substitution, section 1400Z-2(d)(2)
(D)(i) provides that qualified opportunity
zone business property is tangible proper-
ty that meets the following requirements:
(1) the tangible property was acquired by
the trade or business by purchase (as de-
fined in section 179(d)(2)) after Decem-
ber 31, 2017; (2) the original use of such
property in the qualified opportunity zone
commences with the qualified opportunity
zone business, or the qualified opportunity
zone business substantially improves the
property; and (3) for substantially all of
the qualified opportunity zone business’s
holding period of the tangible property,
substantially all of the use of such prop-
erty is in the qualified opportunity zone.
Commenters have expressed concern as
to whether tangible property that is leased
by a qualified opportunity zone business
can be treated as satisfying these require-
ments. Similar questions have arisen
with respect to whether tangible property
leased by a QOF could be treated as satis-
fying the 90-percent asset test under sec-
tion 1400Z-2(d)(1).
A. Status as Qualified Opportunity Zone
Business Property
The purposes of sections 1400Z-1 and
1400Z-2 are to increase business activity
and economic investment in qualified op-
portunity zones. As a proxy for evaluating
increases in business activity and econom-
ic investment in a qualified opportunity
zone, these sections of the Code general-

May 20, 2019 1198 Bulletin No. 2019–21
ly measure increases in tangible business
property used in that qualified opportunity
zone. The general approach of the statute
in evaluating the achievement of those
purposes inform the proposed regula-
tions’ treatment of tangible property that
is leased rather than owned. The Treasury
Department and the IRS also recognize
that not treating leased property as qual-
ified opportunity zone business property
may have an unintended consequence of
excluding investments on tribal lands des-
ignated as qualified opportunity zones be-
cause tribal governments occupy Federal
trust lands and these lands are, more often
than not, leased for economic develop-
ment purposes.
Given the purpose of sections 1400Z-1
and 1400Z-2 to facilitate increased busi-
ness activity and economic investment
in qualified opportunity zones, these pro-
posed regulations would provide greater
parity among diverse types of business
models. If a taxpayer uses tangible proper-
ty located in a qualified opportunity zone
in its business, the benefits of such use on
the qualified opportunity zone’s economy
would not generally be expected to vary
greatly depending on whether the busi-
ness pays cash for the property, borrows
in order to purchase the property, or leases
the property. Not recognizing that benefits
can accrue to a qualified opportunity zone
regardless of the manner in which a QOF
or qualified opportunity zone business ac-
quires rights to use tangible property in
the qualified opportunity zone could result
in preferences solely based on whether
businesses choose to own or lease tangible
property, an anomalous result inconsistent
with the purpose of sections 1400Z-1 and
1400Z-2.
Accordingly, leased tangible property
meeting certain criteria may be treated as
qualified opportunity zone business prop-
erty for purposes of satisfying the 90-per-
cent asset test under section 1400Z-2(d)
(1) and the substantially all requirement
under section 1400Z-2(d)(3)(A)(i). The
following two general criteria must be sat-
isfied. First, analogous to owned tangible
property, leased tangible property must
be acquired under a lease entered into af-
ter December 31, 2017. Second, as with
owned tangible property, substantially all
of the use of the leased tangible property
must be in a qualified opportunity zone
during substantially all of the period for
which the business leases the property.
These proposed regulations, however,
do not impose an original use requirement
with respect to leased tangible property
for, among others, the following reasons.
Unlike owned tangible property, in most
circumstances, leased tangible proper-
ty held by a lessee cannot be placed in
service for depreciation or amortization
purposes because the lessee does not own
such tangible property for Federal income
tax purposes. In addition, in many instanc-
es, leased tangible property may have
been previously leased to other lessees or
previously used in the qualified opportuni-
ty zone. Furthermore, taxpayers generally
do not have a basis in leased property that
can be depreciated, again, because they
are not the owner of such property for
Federal income tax purposes. Therefore,
the proposed regulations do not impose a
requirement for a lessee to “substantially
improve” leased tangible property within
the meaning of section 1400Z-2(d)(2)(D)
(ii).
Unlike tangible property that is pur-
chased by a QOF or qualified opportunity
zone business, the proposed regulations
do not require leased tangible property to
be acquired from a lessor that is unrelated
(within the meaning of section 1400Z-2(e)
(2)) to the QOF or qualified opportuni-
ty zone business that is the lessee under
the lease. However, in order to maintain
greater parity between decisions to lease
or own tangible property, while also lim-
iting abuse, the proposed regulations pro-
vide one limitation as an alternative to
imposing a related person rule or a sub-
stantial improvement rule and two further
limitations that apply when the lessor and
lessee are related.
First, the proposed regulations require
in all cases, that the lease under which a
QOF or qualified opportunity zone busi-
ness acquires rights with respect to any
leased tangible property must be a “mar-
ket rate lease.” For this purpose, whether
a lease is market rate (that is, whether the
terms of the lease reflect common, arms-
length market practice in the locale that
includes the qualified opportunity zone)
is determined under the regulations under
section 482. This limitation operates to
ensure that all of the terms of the lease are
market rate.
Second, if the lessor and lessee are re-
lated, the proposed regulations do not per-
mit leased tangible property to be treated
as qualified opportunity zone business
property if, in connection with the lease,
a QOF or qualified opportunity zone busi-
ness at any time makes a prepayment to
the lessor (or a person related to the lessor
within the meaning of section 1400Z-2(e)
(2)) relating to a period of use of the leased
tangible property that exceeds 12 months.
This requirement operates to prevent inap-
propriate allocations of investment capital
to prepayments of rent, as well as other
payments exchanged for the use of the
leased property.
Third, also applicable when the lessor
and lessee are related, the proposed regu-
lations do not permit leased tangible per-
sonal property to be treated as qualified
opportunity zone business property unless
the lessee becomes the owner of tangible
property that is qualified opportunity zone
business property and that has a value not
less than the value of the leased personal
property. This acquisition of this property
must occur during a period that begins on
the date that the lessee receives possession
of the property under the lease and ends
on the earlier of the last day of the lease or
the end of the 30-month period beginning
on the date that the lessee receives posses-
sion of the property under the lease. There
must be substantial overlap of zone(s) in
which the owner of the property so ac-
quired uses it and the zone(s) in which that
person uses the leased property.
Finally, the proposed regulations in-
clude an anti-abuse rule to prevent the
use of leases to circumvent the substantial
improvement requirement for purchases
of real property (other than unimproved
land). In the case of real property (other
than unimproved land) that is leased by
a QOF, if, at the time the lease is entered
into, there was a plan, intent, or expecta-
tion for the real property to be purchased
by the QOF for an amount of consider-
ation other than the fair market value of
the real property determined at the time of
the purchase without regard to any prior
lease payments, the leased real property
is not qualified opportunity zone business
property at any time.
The Treasury Department and the IRS
request comments on all aspects of the pro-
posed treatment of leased tangible property.

Bulletin No. 2019–21 1199 May 20, 2019
In particular, a determination under sec-
tion 482 of whether the terms of the lease
reflect common, arms-length market prac-
tice in the locale that includes the qualified
opportunity zone takes into account the si-
multaneous combination of all terms of the
lease, including rent, term, possibility of ex-
tension, presence of an option to purchase
the leased asset, and (if there is such an op-
tion) the terms of purchase. Comments are
requested on whether taxpayers and the IRS
may encounter undue burden or difficulty in
determining whether a lease is market rate.
If so, how should the final regulations re-
duce that burden? For example, should the
final regulations describe one or more con-
ditions whose presence would create a pre-
sumption that a lease is (or is not) a market
rate lease? Comments are also requested on
whether the limitations intended to prevent
abusive situations through the use of leased
property are appropriate, or whether modi-
fications are warranted.
B. Valuation of Leased Tangible Property
Based on the foregoing, these proposed
regulations provide methodologies for
valuing leased tangible property for pur-
poses of satisfying the 90-percent asset
test under section 1400Z-2(d)(1) and the
substantially all requirement under section
1400Z-2(d)(3)(A)(i). Under these proposed
regulations, on an annual basis, leased tan-
gible property may be valued using either
an applicable financial statement valuation
method or an alternative valuation method,
each described further below. A QOF or
qualified opportunity zone business, as ap-
plicable, may select the applicable financial
statement valuation method if they actual-
ly have an applicable financial statement
(within the meaning of §1.475(a)-4(h)).
Once a QOF or qualified opportunity zone
business selects one of those valuation
methods for the taxable year, it must ap-
ply such method consistently to all leased
tangible property valued with respect to the
taxable year.
Financial statement valuation method
Under the applicable financial state-
ment valuation method, the value of
leased tangible property of a QOF or
qualified opportunity zone business is
the value of that property as reported on
the applicable financial statement for the
relevant reporting period. These proposed
regulations require that a QOF or qualified
opportunity zone business may select this
applicable financial statement valuation
only if the applicable financial statement
is prepared according to U.S. generally
accepted accounting principles (GAAP)
and requires recognition of the lease of the
tangible property.
Alternative valuation method
Under the alternative valuation meth-
od, the value of tangible property that is
leased by a QOF or qualified opportunity
zone business is determined based on a
calculation of the “present value” of the
leased tangible property. Specifically, the
value of such leased tangible property un-
der these proposed regulations is equal to
the sum of the present values of the pay-
ments to be made under the lease for such
tangible property. For purposes of calcu-
lating present value, the discount rate is
the applicable Federal rate under section
1274(d)(1), determined by substituting the
term “lease” for “debt instrument.”
These proposed regulations require
that a QOF or qualified opportunity zone
business using the alternative valuation
method calculate the value of leased tan-
gible property under this alternative valu-
ation method at the time the lease for such
property is entered into. Once calculated,
these proposed regulations require that
such calculated value be used as the value
for such asset for all testing dates for pur-
poses of the “substantially all of the use”
requirement and the 90-percent asset test.
The Treasury Department and the IRS
request comments on these proposed rules
regarding the treatment and valuation of
leased tangible property, including wheth-
er other alternative valuation methods
may be appropriate, or whether certain
modifications to the proposed valuation
methods are warranted.
III. Qualified Opportunity Zone
Businesses
A. Real Property Straddling a Qualified
Opportunity Zone
Section 1400Z-2(d)(3)(A)(ii) incorpo-
rates the requirements of section 1397C(b)
(2), (4), and (8) related to Empowerment
Zones. The Treasury Department and the
IRS have received numerous comments
on the ability of a business that holds real
property straddling multiple Census tracts,
where not all of the tracts are designated
as a qualified opportunity zone under sec-
tion 1400Z-1, to satisfy the requirements
under sections 1400Z-2 and 1397C(b)(2),
(4), and (8). Commenters have suggested
that the proposed regulations adopt a rule
that is similar to the rule used for purposes
of other place-based tax incentives (that
is, the Empowerment Zones) enshrined in
section 1397C(f). Section 1397C(f) pro-
vides that if the amount of real property
based on square footage located within the
qualified opportunity zone is substantial
as compared to the amount of real proper-
ty based on square footage outside of the
zone, and the real property outside of the
zone is contiguous to part or all of the real
property located inside the zone, then all
of the property would be deemed to be lo-
cated within a qualified zone.
These proposed regulations provide
that in satisfying the requirements of
section 1400Z-2(d)(3)(A)(ii), section
1397C(f) applies in the determination of
whether a qualified opportunity zone is
the location of services, tangible property,
or business functions (substituting “qual-
ified opportunity zone” for “empower-
ment zone”). Real property located within
the qualified opportunity zone should be
considered substantial if the unadjusted
cost of the real property inside a qualified
opportunity zone is greater than the unad-
justed cost of real property outside of the
qualified opportunity zone.
Comments are requested as to whether
there exist circumstances under which the
Treasury Department and the IRS could
apply principles similar to those of section
1397C(f) in the case of other requirements
of section 1400Z-2.
B. 50 Percent of Gross Income of a
Qualified Opportunity Zone Business
Section 1397C(b)(2) provides that, in
order to be a “qualified business entity”
(in addition to other requirements found
in section 1397C(b)) with respect to any
taxable year, a corporation or partnership
must derive at least 50 percent of its total
gross income “from the active conduct of

May 20, 2019 1200 Bulletin No. 2019–21
such business.” The phrase such business
refers to a business mentioned in the pre-
ceding sentence, which discusses “a qual-
ified business within an empowerment
zone.” For purposes of application to sec-
tion 1400Z–2, references in section 1397C
to “an empowerment zone” are treated as
meaning a qualified opportunity zone.
Thus, the corporation or partnership must
derive at least 50 percent of its total gross
income from the active conduct of a busi-
ness within a qualified opportunity zone.
An area of concern for commenters
is how the Treasury Department and the
IRS will determine whether this 50-per-
cent gross income requirement is satis-
fied. Commenters recommended that the
Treasury Department and the IRS pro-
vide guidance to clarify the requirements
of sections 1400Z-2(d)(3)(A)(ii) and
1397C(b)(2).
The proposed regulations provide
three safe harbors and a facts and cir-
cumstances test for determining whether
sufficient income is derived from a trade
or business in a qualified opportunity
zone for purposes of the 50-percent test
in section 1397C(b)(2). Businesses only
need to meet one of these safe harbors to
satisfy that test. The first safe harbor in
the proposed regulations requires that at
least 50 percent of the services performed
(based on hours) for such business by its
employees and independent contractors
(and employees of independent contrac-
tors) are performed within the qualified
opportunity zone. This test is intended to
address businesses located in a qualified
opportunity zone that primarily provide
services. The percentage is based on a
fraction, the numerator of which is the
total number of hours spent by employ-
ees and independent contractors (and
employees of independent contractors)
performing services in a qualified op-
portunity zone during the taxable year,
and the denominator of which is the total
number of hours spent by employees and
independent contractors (and employees
of independent contractors) in perform-
ing services during the taxable year.
For example, consider a startup busi-
ness that develops software applications
for global sale in a campus located in a
qualified opportunity zone. Because the
business’ global consumer base purchases
such applications through internet down-
load, the business’ employees and inde-
pendent contractors are able to devote the
majority of their total number of hours to
developing such applications on the busi-
ness’ qualified opportunity zone campus.
As a result, this startup business would
satisfy the first safe harbor, even though
the business makes the vast majority of
its sales to consumers located outside of
the qualified opportunity zone in which its
campus is located.
The second safe harbor is based upon
amounts paid by the trade or business for
services performed in the qualified oppor-
tunity zone by employees and indepen-
dent contractors (and employees of inde-
pendent contractors). Under this test, if at
least 50 percent of the services performed
for the business by its employees and in-
dependent contractors (and employees of
independent contractors) are performed in
the qualified opportunity zone, based on
amounts paid for the services performed,
the business meets the 50-percent gross
income test found in section 1397C(b)(2).
This test is determined by a fraction, the
numerator of which is the total amount
paid by the entity for employee and in-
dependent contractor (and employees of
independent contractors) services per-
formed in a qualified opportunity zone
during the taxable year, and the denomi-
nator of which is the total amount paid by
the entity for employee and independent
contractor (and employees of independent
contractors) services performed during the
taxable year.
For illustration, assume that the start-
up business described above also utiliz-
es a service center located outside of the
qualified opportunity zone and that more
employees and independent contractor
working hours are performed at the ser-
vice center than the hours worked at the
business’ opportunity zone campus. While
the majority of the total hours spent by
employees and independent contractors
of the startup business occur at the service
center, the business pays 50 percent of its
total compensation for software develop-
ment services performed by employees
and independent contractors on the busi-
ness’ opportunity zone campus. As a re-
sult, the startup business satisfies the sec-
ond safe harbor.
The third safe harbor is a conjunctive
test concerning tangible property and
management or operational functions
performed in a qualified opportunity
zone, permitting a trade or business to
use the totality of its situation to meet
the requirements of sections 1400Z-2(d)
(3)(A)(i) and 1397C(b)(2). The pro-
posed regulations provide that a trade
or business may satisfy the 50-percent
gross income requirement if (1) the tan-
gible property of the business that is in
a qualified opportunity zone and (2) the
management or operational functions
performed for the business in the quali-
fied opportunity zone are each necessary
to generate 50 percent of the gross in-
come of the trade or business. Thus, for
example, if a landscaper’s headquarters
are in a qualified opportunity zone, its
officers and employees manage the dai-
ly operations of the business (occurring
within and outside the qualified oppor-
tunity zone) from its headquarters, and
all of its equipment and supplies are
stored within the headquarters facilities
or elsewhere in the qualified opportunity
zone, then the management activity and
the storage of equipment and supplies in
the qualified opportunity zone are each
necessary to generate 50 percent of the
gross income of the trade or business.
Conversely, the proposed regulations
provide that if a trade or business only
has a PO Box or other delivery address
located in the qualified opportunity
zone, the presence of the PO Box or oth-
er delivery address does not constitute
a factor necessary to generate gross in-
come by such business.
Finally, taxpayers not meeting any of
the other safe harbor tests may meet the
50-percent requirement based on a facts
and circumstances test if, based on all the
facts and circumstances, at least 50 per-
cent of the gross income of a trade or busi-
ness is derived from the active conduct of
a trade or business in the qualified oppor-
tunity zone.
The Treasury Department and the IRS
request comments on the proposed safe
harbor rules regarding the 50-percent
gross income requirement, including
comments offering possible additional
safe harbors, such as one based on head-
count of certain types of service provid-
ers, and whether certain modifications
would be warranted to prevent potential
abuses.

Bulletin No. 2019–21 1201 May 20, 2019
C. Use of Intangibles
As provided in 83 FR 54279 (Octo-
ber 29, 2018) and section 1400Z-2(d)
(3), a qualified opportunity zone trade or
business must satisfy section 1397C(b)
(4). Section 1397C(b)(4) requires that,
with respect to any taxable year, a sub-
stantial portion of the intangible prop-
erty of a qualified business entity must
be used in the active conduct of a trade
or business in the qualified opportunity
zone, but section 1397C does not provide
a definition of “substantial portion.” The
IRS and the Treasury Department have
received comments asking for the defini-
tion of substantial portion. Accordingly,
the proposed regulations provide that, for
purposes of determining whether a sub-
stantial portion of intangible property of
a qualified opportunity zone is used in the
active conduct of a trade or business, the
term substantial portion means at least
40 percent.
D. Active Conduct of a Trade or Business
Section 1400Z-2(d)(3)(A)(ii) also in-
corporates requirement (2) of section
1397C(b), which requires at least 50 per-
cent of the total gross income of a quali-
fied business entity to be derived from the
active conduct of a trade or business with-
in a zone. The IRS has received comments
asking if the active conduct of a trade or
business will be defined for purposes of
section 1400Z-2. Other commentators
have expressed concern that the leasing
of real property by a qualified opportunity
zone business may not amount to the ac-
tive conduct of a trade or business if the
business has limited leasing activity.
Section 162(a) permits a deduction for
ordinary and necessary expenses paid or
incurred in carrying on a trade or business.
The rules under section 162 for determin-
ing the existence of a trade or business
are well-established, and there is a large
body of case law and administrative guid-
ance interpreting the meaning of a trade or
business for that purpose. Therefore, these
proposed regulations define a trade or
business for purposes of section 1400Z-2
as a trade or business within the meaning
of section 162. However, these proposed
regulations provide that the ownership and
operation (including leasing) of real prop-
erty used in a trade or business is treated
as the active conduct of a trade or business
for purposes of section 1400Z-2(d)(3). No
inference should be drawn from the pre-
ceding sentence as to the meaning of the
“active conduct of a trade or business” for
purposes of other provisions of the Code,
including section 355.
The Treasury Department and the IRS
request comments on the proposed defini-
tion of a trade or business for purposes of
section 1400Z-2(d)(3). In addition, com-
ments are requested on whether additional
rules are needed in determining if a trade
or business is actively conducted. The
Treasury Department and the IRS further
request comments on whether it would
be appropriate or useful to extend the re-
quirements of section 1397C applicable to
qualified opportunity zone businesses to
QOFs.
E. Working Capital Safe Harbor
Responding to comments received
on 83 FR 54279 (October 29, 2018) the
proposed regulations make two changes
to the safe harbor for working capital.
First, the written designation for planned
use of working capital now includes the
development of a trade or business in
the qualified opportunity zone as well
as acquisition, construction, and/or sub-
stantial improvement of tangible prop-
erty. Second, exceeding the 31-month
period does not violate the safe harbor
if the delay is attributable to waiting for
government action the application for
which is completed during the 31-month
period.
IV. Special Rule for Section 1231 Gains
In 83 FR 54279 (October 29, 2018) the
proposed regulations clarified that only
capital gains are eligible for deferral under
section 1400Z-2(a)(1). Section 1231(a)(1)
provides that, if the section 1231 gains for
any taxable year exceed the section 1231
losses, such gain shall be treated as long-
term capital gain. Thus, the proposed reg-
ulations provide that only this gain shall
be treated as an eligible gain for purposes
of section 1400Z-2.
In addition, the preamble in 83 FR
54279 (October 29, 2018) stated that
some capital gains are the result of Fed-
eral tax rules deeming an amount to be a
gain from the sale or exchange of a cap-
ital asset, and, in many cases, the stat-
utory language providing capital gain
treatment does not provide a specific date
for the deemed sale. Thus, 83 FR 54279
(October 29, 2018) addressed this issue
by providing that, except as specifically
provided in the proposed regulations, the
first day of the 180-day period set forth
in section 1400Z-2(a)(1)(A) and the reg-
ulations thereunder is the date on which
the gain would be recognized for Federal
income tax purposes, without regard to the
deferral available under section 1400Z-2.
Consistent with 83 FR 54279 (October 29,
2018) and because the capital gain income
from section 1231 property is determin-
able only as of the last day of the taxable
year, these proposed regulations provide
that the 180-day period for investing such
capital gain income from section 1231
property in a QOF begins on the last day
of the taxable year.
The Treasury Department and the IRS
request comments on the proposed treat-
ment of section 1231 gains.
V. Relief with Respect to the 90-Percent
Asset Test
A. Relief for Newly Contributed Assets
A new QOF’s ability to delay the start
of its status as a QOF (and thus the start
of its 90-percent asset tests) provides
the QOF the ability to prepare to deploy
new capital before that capital is received
and must be tested. Failure to satisfy the
90-percent asset test on a testing date
does not by itself cause an entity to fail to
be a QOF within the meaning of section
1400Z-2(d)(1) (this is the case even if it is
the QOF’s first testing date). Some com-
mentators on 83 FR 54279 (October 29,
2018) pointed out that this start-up rule
does not help an existing QOF that re-
ceives new capital from an equity investor
shortly before the next semi-annual test.
The proposed regulations, therefore, al-
low a QOF to apply the test without taking
into account any investments received in
the preceding 6 months. The QOF’s abil-
ity to do this, however, is dependent on
those new assets being held in cash, cash
equivalents, or debt instruments with term
18 months or less.

May 20, 2019 1202 Bulletin No. 2019–21
B. QOF Reinvestment Rule
Section 1400Z-2(e)(4)(B) authorizes
regulations to ensure a QOF has “a rea-
sonable period of time to reinvest the re-
turn of capital from investments in quali-
fied opportunity zone stock and qualified
opportunity zone partnership interests,
and to reinvest proceeds received from the
sale or disposition of qualified opportuni-
ty zone property.” For example, if a QOF,
shortly before a testing date, sells quali-
fied opportunity zone property, that QOF
should have a reasonable amount of time
in which to bring itself into compliance
with the 90-percent asset test. Many stake-
holders have requested guidance not only
on the length of a “reasonable period of
time to reinvest,” but also on the Federal
income tax treatment of any gains that the
QOF reinvests during such a period.
The proposed regulations provide that
proceeds received by the QOF from the
sale or disposition of (1) qualified oppor-
tunity zone business property, (2) quali-
fied opportunity zone stock, and (3) quali-
fied opportunity zone partnership interests
are treated as qualified opportunity zone
property for purposes of the 90-per-
cent investment requirement described
in 1400Z-1(d)(1) and (f), so long as the
QOF reinvests the proceeds received by
the QOF from the distribution, sale, or
disposition of such property during the
12-month period beginning on the date
of such distribution, sale, or disposition.
The one-year rule is intended to allow
QOFs adequate time in which to reinvest
proceeds from qualified opportunity zone
property. Further, in order for the rein-
vested proceeds to be counted as qualified
opportunity zone business property, from
the date of a distribution, sale, or disposi-
tion until the date proceeds are invested in
other qualified opportunity zone property,
the proceeds must be continuously held
in cash, cash equivalents, and debt instru-
ments with a term of 18 months or less. Fi-
nally, a QOF may reinvest proceeds from
the sale of an investment into another type
of qualifying investment. For example, a
QOF may reinvest proceeds from a sale
of an investment in qualified opportunity
stock into qualified opportunity zone busi-
ness property. Analogous to the flexibili-
ty in the safe harbor for working capital,
the proposed regulations extend QOF re-
investment relief from application of the
90-percent asset test if failure to meet the
12-month deadline is attributable to delay
in government action the application for
which is complete.
The Treasury Department and the IRS
request comments on whether an analo-
gous rule for QOF subsidiaries to reinvest
proceeds from the disposition of qualified
opportunity zone property would be ben-
eficial.
Additionally, commenters have re-
quested that the grant of authority in sec-
tion 1400Z-2(e)(4)(B) be used to exempt
QOFs and investors in QOFs from the
Federal income tax consequences of dis-
positions of qualified opportunity zone
property by QOFs or qualified opportu-
nity zone businesses if the proceeds from
such dispositions are reinvested within
a reasonable timeframe. The Treasury
Department and the IRS believe that the
grant of this regulatory authority permits
QOFs a reasonable time to reinvest such
proceeds without the QOF being harmed
(that is, without the QOF incurring the
penalty set forth in section 1400Z-2(f) be-
cause the proceeds would not be qualified
opportunity zone property). However, the
statutory language granting this regulatory
authority does not specifically authorize
the Secretary to prescribe rules for QOFs
departing from the otherwise operative
recognition provisions of sections 1001(c)
and 61(a)(3).
Regarding the tax benefits provid-
ed to investors in QOFs under section
1400Z-2(b) and (c), as stated earlier, sec-
tions 1400Z-1 and 1400Z-2 seek to en-
courage economic growth and investment
in designated distressed communities
(qualified opportunity zones) by providing
Federal income tax benefits to taxpayers
who invest in businesses located within
these zones through a QOF. Congress tied
these tax incentives to the longevity of an
investor’s stake in a QOF, not to a QOF’s
stake in any specific portfolio investment.
Further, Congress expressly recognized
that many QOFs would experience invest-
ment “churn” over the lifespan of the QOF
and anticipated this by providing the Sec-
retary the regulatory latitude for permit-
ting QOFs a reasonable time to reinvest
capital. Consistent with this regulatory
authority, the Treasury Department and
the IRS clarify that sales or dispositions of
assets by a QOF do not impact in any way
investors’ holding periods in their quali-
fying investments or trigger the inclusion
of any deferred gain reflected in such
qualifying investments so long as they
do not sell or otherwise dispose of their
qualifying investment for purposes of sec-
tion 1400Z-2(b). However, the Treasury
Department and the IRS are not able to
find precedent for the grant of authority in
section 1400Z-2(e)(4)(B) to permit QOFs
a reasonable time to reinvest capital and
allow the Secretary to prescribe regula-
tions permitting QOFs or their investors to
avoid recognizing gain on the sale or dis-
position of assets under sections 1001(c)
and 61(a)(3), and notes that examples of
provisions in subtitle A of the Code that
provide for nonrecognition treatment or
exclusion from income can be found in
sections 351(a), 354(a), 402(c), 501(a),
721(a), 1031(a), 1032(a), and 1036(a),
among others, some of which are applied
in the proposed rules and described as se-
lected examples in this preamble. In this
regard, the Treasury Department and the
IRS are requesting commenters to pro-
vide prior examples of tax regulations that
exempt realized gain from being recog-
nized under sections 1001(c) or 61(a)(3)
by a taxpayer (either a QOF or qualified
opportunity zone business, or in the case
of QOF partnerships or QOF S corpora-
tions, the investors that own qualifying
investments in such QOFs) without an
operative provision of subtitle A of the
Code expressly providing for nonrecogni-
tion treatment; as well as to provide any
comments on the possible burdens im-
posed if these organizations are required
to reset the holding period for reinvested
realized gains, including administrative
burdens and the potential chilling effect
on investment incentives that may result
from these possible burdens, and whether
specific organizational forms could be dis-
proportionately burdened by this proposed
policy.
VI. Amount of an Investment for
Purposes of Making a Deferral
Election
A taxpayer may make an investment
for purposes of an election under sec-
tion 1400Z-2(a) by transferring cash or
other property to a QOF, regardless of

Bulletin No. 2019–21 1203 May 20, 2019
whether the transfer is taxable to the trans-
feror (such as where the transferor is not in
control of the transferee corporation), pro-
vided the transfer is not re-characterized
as a transaction other than an investment
in the QOF (as would be the case where
a purported contribution to a partnership
is treated as a disguised sale). These pro-
posed regulations provide special rules for
determining the amount of an investment
for purposes of this election if a taxpay-
er transfers property other than cash to a
QOF in a carryover basis transaction. In
that case, the amount of the investment
equals the lesser of the taxpayer’s adjusted
basis in the equity received in the transac-
tion (determined without regard to section
1400Z-2(b)(2)(B)) or the fair market val-
ue of the equity received in the transaction
(both as determined immediately after the
transaction). In the case of a contribution
to a partnership that is a QOF (QOF part-
nership), the basis in the equity to which
section 1400Z-2(b)(2)(B)(i) applies is cal-
culated without regard to any liability that
is allocated to the contributor under sec-
tion 752(a). These rules apply separately
to each item of property contributed to a
QOF, but the total amount of the invest-
ment for purposes of the election is limit-
ed to the amount of the gain described in
section 1400Z-2(a)(1).
The proposed regulations set forth two
special rules that treat a taxpayer as having
created a mixed-funds investment (within
the meaning of proposed §1.1400Z2(b)-
1(a)(2)(v)). First, a mixed-funds invest-
ment will result if a taxpayer contributes
to a QOF, in a nonrecognition transaction,
property that has a fair market value in ex-
cess of the property’s adjusted basis. Sec-
ond, a mixed-funds investment will result
if the amount of the investment that might
otherwise support an election exceeds the
amount of the taxpayer’s eligible gain de-
scribed in section 1400Z-2(a)(1). In each
instance, that excess (that is, the excess
of fair market value over adjusted basis,
or the excess of the investment amount
over eligible gain, as appropriate) is treat-
ed as an investment described in section
1400Z-2(e)(1)(A)(ii) (that is, the portion
of the contribution to which a deferral
election does not apply).
If a taxpayer acquires a direct invest-
ment in a QOF from a direct owner of the
QOF, these proposed regulations also pro-
vide that, for purposes of making an elec-
tion under section 1400Z-2(a), the taxpay-
er is treated as making an investment in an
amount equal to the amount paid for the
eligible interest.
The Treasury Department and the
IRS request comments on the proposed
rules regarding the amount with respect
to which a taxpayer may make a deferral
election under section 1400Z-2(a).
VII. Events That Cause Inclusion of
Deferred Gain (Inclusion Events)
A. In General
Section 1400Z-2(b)(1) provides that
the amount of gain that is deferred if a
taxpayer makes an equity investment in
a QOF described in section 1400Z-2(e)
(1)(A)(i) (qualifying investment) will be
included in the taxpayer’s income in the
taxable year that includes the earlier of
(A) the date on which the qualifying in-
vestment is sold or exchanged, or (B) De-
cember 31, 2026. By using the terms
“sold or exchanged,” section 1400Z-2(b)
(1) does not directly address non-sale or
exchange dispositions, such as gifts, be-
quests, devises, charitable contributions,
and abandonments of qualifying invest-
ments. However, the Conference Report
to accompany H.R. 1, Report 115-466
(Dec. 15, 2017) provides that, under sec-
tion 1400Z-2(b)(1), the “deferred gain
is recognized on the earlier of the date
on which the [qualifying] investment is
disposed of or December 31, 2026.” See
Conference Report at 539.
The proposed regulations track the
disposition language set forth in the Con-
ference Report and clarify that, subject to
enumerated exceptions, an inclusion event
results from a transfer of a qualifying in-
vestment in a transaction to the extent
the transfer reduces the taxpayer’s equity
interest in the qualifying investment for
Federal income tax purposes. Notwith-
standing that general principle, and except
as otherwise provided in the proposed reg-
ulations, a transaction that does not reduce
a taxpayer’s equity interest in the taxpay-
er’s qualifying investment is also an inclu-
sion event under the proposed regulations
to the extent the taxpayer receives proper-
ty from a QOF in a transaction treated as
a distribution for Federal income tax pur-
poses. For this purpose, property general-
ly is defined as money, securities, or any
other property, other than stock (or rights
to acquire stock) in the corporation that is
a QOF (QOF corporation) that is making
the distribution. The Treasury Department
and the IRS have determined that it is
necessary to treat such transactions as in-
clusion events to prevent taxpayers from
“cashing out” a qualifying investment in
a QOF without including in gross income
any amount of their deferred gain.
Based upon the guidance set forth in
the Conference Report and the principles
underlying the “inclusion event” concept
described in the preceding paragraphs,
the proposed regulations provide taxpay-
ers with a nonexclusive list of inclusion
events, which include:
(1) A taxable disposition (for example,
a sale) of all or a part of a qualifying
investment (qualifying QOF partner-
ship interest) in a QOF partnership
or of a qualifying investment (quali-
fying QOF stock) in a QOF corpora-
tion;
(2) A taxable disposition (for example, a
sale) of interests in an S corporation
which itself is the direct investor in
a QOF corporation or QOF partner-
ship if, immediately after the disposi-
tion, the aggregate percentage of the
S corporation interests owned by the
S corporation shareholders at the time
of its deferral election has changed
by more than 25 percent. When the
threshold is exceeded, any deferred
gains recognized would be reported
under the provisions of subchapter S
of chapter 1 of subtitle A of the Code
(subchapter S);
(3) In certain cases, a transfer by a part-
ner of an interest in a partnership that
itself directly or indirectly holds a
qualifying investment;
(4) A transfer by gift of a qualifying in-
vestment;
(5) The distribution to a partner of a QOF
partnership of property that has a val-
ue in excess of basis of the partner’s
qualifying QOF partnership interest;
(6) A distribution of property with re-
spect to qualifying QOF stock under
section 301 to the extent it is treated
as gain from the sale or exchange of
property under section 301(c)(3);

May 20, 2019 1204 Bulletin No. 2019–21
(7) A distribution of property with re-
spect to qualifying QOF stock under
section 1368 to the extent it is treat-
ed as gain from the sale or exchange
of property under section 1368(b)(2)
and (c);
(8) A redemption of qualifying QOF
stock that is treated as an exchange of
property for the redeemed qualifying
QOF stock under section 302;
(9) A disposition of qualifying QOF
stock in a transaction to which section
304 applies;
(10) A liquidation of a QOF corporation
in a transaction to which section 331
applies; and
(11) Certain nonrecognition transactions,
including:
a. A liquidation of a QOF corpora-
tion in a transaction to which sec-
tion 332 applies;
b. A transfer of all or part of a tax-
payer’s qualifying QOF stock in a
transaction to which section 351
applies;
c. A stock-for-stock exchange of
qualifying QOF stock in a transac-
tion to which section 368(a)(1)(B)
applies;
d. A triangular reorganization of a
QOF corporation within the mean-
ing of §1.358-6(b)(2);
e. An acquisitive asset reorganiza-
tion in which a QOF corporation
transfers its assets to its sharehold-
er and terminates (or is deemed to
terminate) for Federal income tax
purposes;
f. An acquisitive asset reorganization
in which a corporate taxpayer that
made the qualifying investment in
the QOF corporation (QOF share-
holder) transfers its assets to the
QOF corporation and terminates
(or is deemed to terminate) for
Federal income tax purposes;
g. An acquisitive asset reorganiza-
tion in which a QOF corporation
transfers its assets to an acquiring
corporation that is not a QOF cor-
poration within a prescribed peri-
od after the transaction;
h. A recapitalization of a QOF corpo-
ration, or a contribution by a QOF
shareholder of a portion of its
qualifying QOF stock to the QOF
corporation, if the transaction has
the result of reducing the taxpay-
er’s equity interest in the QOF cor-
poration;
i. A distribution by a QOF share-
holder of its qualifying QOF stock
to its shareholders in a transaction
to which section 355 applies;
j. A transfer by a QOF corpora-
tion of subsidiary stock to QOF
shareholders in a transaction to
which section 355 applies if, after
a prescribed period following the
transaction, either the distributing
corporation or the controlled cor-
poration is not a QOF; and
k. A transfer to, or an acquisitive
asset reorganization of, an S cor-
poration which itself is the direct
investor in a QOF corporation or
QOF partnership if, immediately
after the transfer or reorganization,
the percentage of the S corporation
interests owned by the S corpora-
tion shareholders at the time of its
deferral election has decreased by
more than 25 percent.
Each of the previously described trans-
actions would be an inclusion event be-
cause each would reduce or terminate the
QOF investor’s direct (or, in the case of
partnerships, indirect) qualifying invest-
ment for Federal income tax purposes or
(in the case of distributions) would consti-
tute a “cashing out” of the QOF investor’s
qualifying investment. As a result, the
QOF investor would recognize all, or a
corresponding portion, of its deferred gain
under section 1400Z-2(a)(1)(B) and (b).
The Treasury Department and the IRS
request comments on the proposed rules
regarding the inclusion events that would
result in a QOF investor recognizing an
amount of deferred gain under section
1400Z-2(a)(1)(B) and (b), including the
pledging of qualifying investments as col-
lateral for nonrecourse loans.
B. Timing of Basis Adjustments
Under section 1400Z-2(b)(2)(B)(i), an
electing taxpayer’s initial basis in a qual-
ifying investment is zero. Under section
1400Z-2(b)(2)(B)(iii) and (iv), a taxpay-
er’s basis in its qualifying investment is
increased automatically after the invest-
ment has been held for five years by an
amount equal to 10 percent of the amount
of deferred gain, and then again after the
investment has been held for seven years
by an amount equal to an additional five
percent of the amount of deferred gain.
The proposed regulations clarify that such
basis is basis for all purposes and, for ex-
ample, losses suspended under section
704(d) would be available to the extent of
the basis step-up.
The proposed regulations also clari-
fy that basis adjustments under section
1400Z-2(b)(2)(B)(ii), which reflect the
recognition of deferred gain upon the
earlier of December 31, 2026, or an in-
clusion event, are made immediately af-
ter the amount of deferred capital gain is
taken into income. If a basis adjustment
is made under section 1400Z-2(b)(2)(B)
(ii) as a result of a reduction in direct tax
ownership of a qualifying investment, a
redemption, a distribution treated as gain
from the sale or exchange of property un-
der section 301(c)(3) or section 1368(b)
(2) and (c), or a distribution to a partner of
property with a value in excess of the part-
ner’s basis in the qualifying QOF partner-
ship interest, the basis adjustment is made
before determining the tax consequenc-
es of the inclusion event with respect to
the qualifying investment (for example,
before determining the recovery of basis
under section 301(c)(2) or the amount of
gain the taxpayer must take into account
under section 301, section 1368, or the
provisions of subchapter K of chapter 1 of
subtitle A of the Code (subchapter K), as
applicable). For a discussion of distribu-
tions as inclusion events, see part VII.G of
this Explanation of Provisions.
The proposed regulations further clari-
fy that, if the taxpayer makes an election
under section 1400Z-2(c), the basis adjust-
ment under section 1400Z-2(c) is made
immediately before the taxpayer disposes
of its QOF investment. For dispositions
of qualifying QOF partnership interests,
the bases of the QOF partnership’s as-
sets are also adjusted with respect to the
transferred qualifying QOF partnership
interest, with such adjustments calculat-
ed in a manner similar to the adjustments
that would have been made to the partner-
ship’s assets if the partner had purchased
the interest for cash immediately prior to
the transaction and the partnership had a
valid section 754 election in effect. This

Bulletin No. 2019–21 1205 May 20, 2019
will permit basis adjustments to the QOF
partnership’s assets, including its invento-
ry and unrealized receivables, and avoid
the creation of capital losses and ordinary
income on the sale. See part VII.D.4 of
this Explanation of Provisions for a spe-
cial election for direct investors in QOF
partnerships and S corporations that are
QOFs (QOF S corporations) for the ap-
plication of section 1400Z-2(c) to certain
sales of assets of a QOF partnership or
QOF S corporation. With respect to that
special election, the Treasury Department
and the IRS intend to implement targeted
anti-abuse provisions (for example, provi-
sions addressing straddles). The Treasury
Department and IRS request comments on
whether one or more such provisions are
appropriate to carry out the purposes of
section 1400Z-2.
More generally, the Treasury Depart-
ment and the IRS request comments on the
proposed rules regarding the timing of ba-
sis adjustments under section 1400Z-2(b)
and (c).
C. Amount Includible
In general, other than with respect to
partnerships, if a taxpayer has an inclusion
event with regard to its qualifying invest-
ment in a QOF, the taxpayer includes in
gross income the lesser of two amounts,
less the taxpayer’s basis. The first amount
is the fair market value of the portion of
the qualifying investment that is disposed
of in the inclusion event. For purposes of
this section, the fair market value of that
portion is determined by multiplying the
fair market value of the taxpayer’s entire
qualifying investment in the QOF, valued
as of the date of the inclusion event, by the
percentage of the taxpayer’s qualifying in-
vestment that is represented by the portion
disposed of in the inclusion event. The
second amount is the amount that bears
the same ratio to the remaining deferred
gain as the first amount bears to the total
fair market value of the qualifying invest-
ment in the QOF immediately before the
transaction.
For inclusion events involving partner-
ships, the amount includible is equal to the
percentage of the qualifying QOF partner-
ship interest disposed of, multiplied by the
lesser of: (1) the remaining deferred gain
less any basis adjustments pursuant to sec-
tion 1400Z-2(b)(2)(B)(iii) and (iv) or (2)
the gain that would be recognized by the
partner if the interest were sold in a fully
taxable transaction for its then fair market
value.
For inclusion events involving a QOF
shareholder that is an S corporation, if
the S corporation undergoes an aggregate
change in ownership of more than 25 per-
cent, there is an inclusion event with re-
spect to all of the S corporation’s remain-
ing deferred gain (see part VII.D.3 of this
Explanation of Provisions).
A special “dollar-for-dollar” rule ap-
plies in certain circumstances if a QOF
owner receives property from a QOF that
gives rise to an inclusion event. These cir-
cumstances include actual distributions
with respect to qualifying QOF stock that
do not reduce a taxpayer’s direct interest
in qualifying QOF stock, stock redemp-
tions to which section 302(d) applies,
and the receipt of boot in certain corpo-
rate reorganizations, as well as actual or
deemed distributions with respect to qual-
ifying QOF partnership interests. This
dollar-for-dollar rule would be simpler to
administer than a rule that would require
taxpayers to undertake valuations of QOF
investments each time a QOF owner re-
ceived a distribution with respect to the
qualifying investment or received boot
in a corporate reorganization. If this dol-
lar-for-dollar rule applies, the taxpayer
includes in gross income an amount of the
taxpayer’s remaining deferred gain equal
to the lesser of (1) the remaining deferred
gain, or (2) the amount that gave rise to the
inclusion event. The Treasury Department
and the IRS request comments on the dol-
lar-for-dollar rule and the circumstances
in which this rule would apply under these
proposed regulations.
D. Partnership and S Corporation
Provisions
1. Partnership Provisions in General
With respect to property contributed
to a QOF partnership in exchange for a
qualifying investment, the partner’s basis
in the qualifying interest is zero under sec-
tion 1400Z-2(b)(2)(B)(i), increased by the
partner’s share of liabilities under section
752(a). However, the carryover basis rules
of section 723 apply in determining the
basis to the partnership of property con-
tributed. The Treasury Department and the
IRS are aware that, where inside-outside
basis disparities exist in a partnership, tax-
payers could manipulate the rules of sub-
chapter K to create non-economic gains
and losses. Accordingly, the Treasury De-
partment and the IRS request comments
on rules that would limit abusive transac-
tions that could be undertaken as a result
of these disparities.
The proposed regulations provide that
the transfer by a partner of all or a portion
of its interest in a QOF partnership or in a
partnership that directly or indirectly holds
a qualifying investment generally will be
an inclusion event. However, a transfer
in a transaction governed by section 721
(partnership contributions) or section
708(b)(2)(A) (partnership mergers) is
generally not an inclusion event, provid-
ed there is no reduction in the amount of
the remaining deferred gain that would be
recognized under section 1400Z-2 by the
transferring partners on a later inclusion
event. Similar rules apply in the case of
tiered partnerships. However, the resulting
partnership or new partnership becomes
subject to section 1400Z-2 to the same ex-
tent as the original taxpayer that made the
qualifying investment in the QOF.
Partnership distributions in the ordi-
nary course of partnership operations may,
in certain instances, also be considered in-
clusion events. Under the proposed regu-
lations, the actual or deemed distribution
of cash or other property with a fair mar-
ket value in excess of the partner’s basis in
its qualifying QOF partnership interest is
also an inclusion event.
2. Partnership Mixed-Funds Invest-
ments
Rules specific to section 1400Z-2 are
needed for mixed-funds investments
where a partner contributes to a QOF
property with a value in excess of its basis,
or cash in excess of the partner’s eligible
section 1400Z-2 gain, or where a partner
receives a partnership interest in exchange
for services (for example, a carried in-
terest). Section 1400Z-2(e)(1) provides
that only the portion of the investment
in a QOF to which an election under sec-
tion 1400Z-2(a) is in effect is treated as
a qualifying investment. Under this rule,
the share of gain attributable to the excess
investment and/or the service component
of the interest in the QOF partnership is

May 20, 2019 1206 Bulletin No. 2019–21
not eligible for the various benefits afford-
ed qualifying investments under section
1400Z-2 and is not subject to the inclusion
rules of section 1400Z-2. This is the case
with respect to a carried interest, despite
the fact that all of the partnership’s invest-
ments might be qualifying investments.
The Treasury Department and the IRS
considered various approaches to account-
ing for a partner holding a mixed-funds
investment in a QOF partnership and re-
quest comments on the approach adopted
by the proposed regulations. For example,
a partner could be considered to own two
separate investments and separately track
the basis and value of the investments,
similar to a shareholder tracking two sep-
arate blocks of stock. However, that ap-
proach is inconsistent with the subchapter
K principle that a partner has a unitary ba-
sis and capital account in its partnership
interest. Thus, the proposed regulations
adopt the approach that a partner holding
a mixed-funds investment will be treated
as holding a single partnership interest
with a single basis and capital account for
all purposes of subchapter K, but not for
purposes of section 1400Z-2. Under the
proposed regulations, solely for purpos-
es of section 1400Z-2, the mixed-funds
partner will be treated as holding two in-
terests, and all partnership items, such as
income and debt allocations and proper-
ty distributions, would affect qualifying
and non-qualifying investments propor-
tionately, based on the relative allocation
percentages of each interest. Allocation
percentages would generally be based on
relative capital contributions for qualify-
ing investments and other investments.
However, section 704(c) principles ap-
ply to partnership allocations attributable
to property with value-basis disparities
to prevent inappropriate shifts of built-in
gains or losses between qualifying invest-
ments and non-qualifying investments.
Additionally, special rules apply in cal-
culating the allocation percentages in the
case of a partner who receives a profits in-
terest for services, with the percent attrib-
utable to the profits interest being treated
as a non-qualifying investment to the ex-
tent of the highest percentage interest in
residual profits attributable to the interest.
In the event of an additional contri-
bution of qualifying or non-qualifying
amounts, a revaluation of the relative
partnership investments is required im-
mediately before the contribution in order
to adequately account for the two compo-
nents.
Consistent with the unitary basis rules
of subchapter K, a distribution of money
would not give rise to section 731 gain
unless the distribution exceeded the part-
ner’s total outside basis. For example, if a
partner contributed $200 to a QOF part-
nership, half of which related to deferred
section 1400Z-2 gain, and $20 of part-
nership debt was allocated to the partner,
the partner’s outside basis would be $120
(zero for the qualifying investment contri-
bution, plus $100 for the non-qualifying
investment contribution, plus $20 under
section 752(a)), and only a distribution
of money in excess of that amount would
trigger gain under subchapter K. Howev-
er, for purposes of calculating the section
1400Z-2 gain, the qualifying investment
portion of the interest would have a basis
of $10, with the remaining $110 attribut-
able to the non-qualifying investment. A
distribution of $40 would be divided be-
tween the two investments and would not
result in gain under section 731; however,
the distribution would constitute an inclu-
sion event under section 1400Z-2, and the
partner would be required to recognize
gain in the amount of $10 (the excess of
the $20 distribution attributable to the
qualifying investment over the $10 basis
in the interest).
The Treasury Department and the IRS
are concerned with the potential com-
plexity associated with this approach and
request comments on alternative ways to
account for distributions in the case of a
mixed-funds investment in a QOF part-
nership. The Treasury Department and the
IRS also request comments on whether an
ordering rule treating the distribution as
attributable to the qualifying or non-qual-
ifying investment portion first is appro-
priate, and how any alternative approach
would simplify the calculations.
3. Application to S Corporations
Under section 1371(a), and for purpos-
es of these proposed regulations, the rules
of subchapter C of chapter 1 of subtitle A
of the Code (subchapter C) applicable to
C corporations and their shareholders ap-
ply to S corporations and their sharehold-
ers, except to the extent inconsistent with
the provisions of subchapter S. In such
instances, S corporations and their share-
holders are subject to the specific rules
of subchapter S. For example, similar to
rules applicable to QOF partnerships, a
distribution of property to which section
1368 applies by a QOF S corporation is
an inclusion event to the extent that the
distributed property has a fair market val-
ue in excess of the shareholder’s basis,
including any basis adjustments under
section 1400Z-2(b)(2)(B)(iii) and (iv). In
addition, the rules set forth in these pro-
posed regulations regarding liquidations
and reorganizations of QOF C corpora-
tions and QOF C corporation shareholders
apply equally to QOF S corporations and
QOF S corporation shareholders.
However, flow-through principles un-
der subchapter S apply to S corporations
when the application of subchapter C
would be inconsistent with subchapter S.
For example, if an inclusion event were to
occur with respect to deferred gain of an
S corporation that is an investor in a QOF,
the shareholders of such S corporation
would include such gain pro rata in their
respective taxable incomes. Consequent-
ly, those S corporation shareholders would
increase their bases in their S corporation
stock at the end of the taxable year during
which the inclusion event occurred. Pur-
suant to the S corporation distribution
rules set forth in section 1368, the S cor-
poration shareholders would receive fu-
ture distributions from the S corporation
tax-free to the extent of the deferred tax
amount included in income and included
in stock basis.
In addition, these proposed regulations
set forth specific rules for S corporations
to provide certainty to taxpayers regard-
ing the application of particular provisions
under section 1400Z-2. Regarding section
1400Z-2(b)(1)(A), these proposed regula-
tions clarify that a conversion of an S cor-
poration that holds a qualifying investment
in a QOF to a C corporation (or a C cor-
poration to an S corporation) is not an in-
clusion event because the interests held by
each shareholder of the C corporation or
S corporation, as appropriate, would re-
main unchanged with respect to the corpo-
ration’s qualifying investment in a QOF.
With regard to mixed-funds investments
in a QOF S corporation described in sec-
tion 1400Z-2(e)(1), if different blocks of
stock are created for otherwise qualifying

Bulletin No. 2019–21 1207 May 20, 2019
investments to track basis in these qualify-
ing investments, the proposed regulations
make clear that the separate blocks will
not be treated as different classes of stock
for purposes of S corporation eligibility
under section 1361(b)(1).
The proposed regulations also provide
that, if an S corporation is an investor in
a QOF, the S corporation must adjust the
basis of its qualifying investment in the
manner set forth for C corporations in pro-
posed §1.1400Z2(b)-1(g), except as oth-
erwise provided in these rules. This rule
does not affect adjustments to the basis of
any other asset of the S corporation. The
S corporation shareholder’s pro-rata share
of any recognized deferred capital gain at
the S corporation level will be separately
stated under section 1366 and will adjust
the shareholders’ stock basis under section
1367. In addition, the proposed regulations
make clear that any adjustment made to
the basis of an S corporation’s qualifying
investment under section 1400Z-2(b)(2)
(B)(iii) or (iv) or section 1400Z-2(c) will
not (1) be separately stated under section
1366, and (2) until the date on which an
inclusion event with respect to the S cor-
poration’s qualifying investment occurs,
adjust the shareholders’ stock basis under
section 1367. If a basis adjustment under
section 1400Z-2(b)(2)(B)(ii) is made as a
result of an inclusion event, then the basis
adjustment will be made before determin-
ing the other tax consequences of the in-
clusion event.
Finally, under these proposed regu-
lations, special rules would apply in the
case of certain ownership shifts in S cor-
porations that are QOF owners. Under
these rules, solely for purposes of section
1400Z-2, the S corporation’s qualifying
investment in the QOF would be treated
as disposed of if there is a greater-than-25
percent change in ownership of the S cor-
poration (aggregate change in ownership).
If an aggregate change in ownership has
occurred, the S corporation would have an
inclusion event with respect to all of the
S corporation’s remaining deferred gain,
and neither section 1400Z-2(b)(2)(B)(iii)
or (iv), nor section 1400Z-2(c), would
apply to the S corporation’s qualifying
investment after that date. This proposed
rule attempts to balance the status of the
S corporation as the owner of the qualify-
ing investment with the desire to preserve
the incidence of the capital gain inclusion
and income exclusion benefits under sec-
tion 1400Z-2. The Treasury Department
and the IRS request comments on the pro-
posed rules regarding ownership changes
in S corporations that are QOF owners.
4. Special Election for Direct Investors
in QOF Partnerships and QOF S Corpo-
rations
For purposes of section 1400Z-2(c),
which applies to investments held for at
least 10-years, a taxpayer that is the hold-
er of a direct qualifying QOF partnership
interest or qualifying QOF stock of a
QOF S corporation may make an election
to exclude from gross income some or all
of the capital gain from the disposition
of qualified opportunity zone property
reported on Schedule K-1 of such entity,
provided the disposition occurs after the
taxpayer’s 10-year holding period. To the
extent that such Schedule K-1 separately
states capital gains arising from the sale
or exchange of any particular capital as-
set, the taxpayer may make an election
under section 1400Z-2(c) with respect to
such separately stated item. To be valid,
the taxpayer must make such election for
the taxable year in which the capital gain
from the sale or exchange of QOF prop-
erty recognized by the QOF partnership
or QOF S corporation would be included
in the taxpayer’s gross income, in accor-
dance with applicable forms and instruc-
tions. If a taxpayer makes this election
with respect to some or all of the capital
gain reported on such Schedule K-1, the
amount of such capital gain that the tax-
payer elects to exclude from gross income
is excluded from income for purposes of
the Internal Revenue Code and the regula-
tions thereunder. For basis purposes, such
excluded amount is treated as an item of
income described in sections 705(a)(1)
or 1366 thereby increasing the partners
or shareholders’ bases by their shares of
such amount. These proposed regulations
provide no similar election to holders of
qualifying QOF stock of a QOF C corpo-
ration that is not a QOF REIT.
The Treasury Department and the IRS
request comments on the eligibility for,
and the operational mechanics of, the pro-
posed rules regarding this special election.
5. Ability of QOF REITs to pay tax-
free capital gain dividends to 10-plus-year
investors
The proposed rules authorize QOF real
estate investment trusts (QOF REITs) to
designate special capital gain dividends,
not to exceed the QOF REIT’s long-term
gains on sales of Qualified Opportunity
Zone property. If some QOF REIT shares
are qualified investments in the hands of
some shareholders, those special capital
gain dividends are tax free to shareholders
who could have elected a basis increase in
case of a sale of the QOF REIT shares. The
Treasury Department and the IRS request
comments on the eligibility for, and the
operational mechanics of, the proposed
rules regarding this special treatment.
E. Transfers of Property by Gift or by
Reason of Death
For purposes of sections 1400Z-2(b)
and (c), any disposition of the owner’s
qualifying investment is an inclusion
event for purposes of section 1400Z-2(b)
(1) and proposed §1.1400Z2(b)-1(a), ex-
cept as provided in these proposed regu-
lations. Generally, transfers of property by
gift, in part or in whole, either will reduce
or terminate the owner’s qualifying in-
vestment. Accordingly, except as provided
in these proposed regulations, transfers by
gift will be inclusion events for purposes
of section 1400Z-2(b)(1) and proposed
§1.1400Z2(b)-1(c).
For example, a transfer of a qualify-
ing investment by gift from the donor, in
this case the owner, to the donee either
will reduce or will terminate the own-
er’s qualifying investment, depending
upon whether the owner transfers part or
all of the owner’s qualifying investment.
A charitable contribution, as defined in
section 170(c), of a qualifying interest is
also an inclusion event because, again, the
owner’s qualifying investment is termi-
nated upon the transfer. However, a trans-
fer of a qualifying investment by gift by
the taxpayer to a trust that is treated as a
grantor trust of which the taxpayer is the
deemed owner is not an inclusion event.
The rationale for this exception is that, for
Federal income tax purposes, the owner
of the grantor trust is treated as the owner
of the property in the trust until such time
that the owner releases certain powers that
cause the trust to be treated as a grantor
trust. Accordingly, the owner’s qualifying
investment is not reduced or eliminated

May 20, 2019 1208 Bulletin No. 2019–21
for Federal income tax purposes upon the
transfer to such a grantor trust. However,
any change in the grantor trust status of
the trust (except by reason of the grantor’s
death) is an inclusion event because the
owner of the trust property for Federal in-
come tax purposes is changing.
Most transfers by reason of death will
terminate the owner’s qualifying invest-
ment. For example, the qualifying invest-
ment may be distributed to a beneficiary of
the owner’s estate or may pass by opera-
tion of law to a named beneficiary. In each
case, the owner’s qualifying investment is
terminated. Nevertheless, in part because
of the statutory direction that amounts rec-
ognized that were not properly includible
in the gross income of the deceased own-
er are to be includible in gross income as
provided in section 691, the Treasury De-
partment and the IRS have concluded that
the distribution of the qualifying invest-
ment to the beneficiary by the estate or by
operation of law is not an inclusion event
for purposes of section 1400Z-2(b). Thus,
the proposed regulations would provide
that neither a transfer of the qualifying
investment to the deceased owner’s estate
nor the distribution by the estate to the
decedent’s legatee or heir is an inclusion
event for purposes of section 1400Z-2(b).
Similarly, neither the termination of grant-
or trust status by reason of the grantor’s
death nor the distribution by that trust to a
trust beneficiary by reason of the grantor’s
death is an inclusion event for purposes
of section 1400Z-2(b). In each case, the
recipient of the qualifying investment has
the obligation, as under section 691, to
include the deferred gain in gross income
in the event of any subsequent inclusion
event, including for example, any further
disposition by that recipient.
F. Exceptions for Disregarded Transfers
and Certain Types of Nonrecognition
Transactions
1. In general
Proposed §1.1400Z2(b)-1(c) describes
certain transfers that are not inclusion
events with regard to a taxpayer’s quali-
fying investment for purposes of section
1400Z-2(b)(1). For example, a taxpayer’s
transfer of its qualifying investment to an
entity that is disregarded as separate from
the taxpayer for Federal income tax pur-
poses is not an inclusion event because the
transfer is disregarded for Federal income
tax purposes. The same rationale applies
here as in the case of a taxpayer’s transfer
of its qualifying investment to a grantor
trust of which the taxpayer is the deemed
owner. However, a change in the entity’s
status as disregarded would be an inclu-
sion event.
Additionally, a transfer of a QOF’s as-
sets in an acquisitive asset reorganization
described in section 381(a)(2) (qualifying
section 381 transaction) generally is not
an inclusion event if the acquiring corpo-
ration is a QOF within a prescribed period
of time after the transaction. Following
such a qualifying section 381 transaction,
the taxpayer retains a direct qualifying
investment in a QOF with an exchanged
basis. However, the proposed regulations
provide that a qualifying section 381
transaction generally is an inclusion event,
even if the acquiring corporation qualifies
as a QOF within the prescribed post-trans-
action period, to the extent the taxpayer
receives boot in the reorganization (oth-
er than boot that is treated as a dividend
under section 356(a)(2)) because, in those
situations, the taxpayer reduces its direct
qualifying investment in the QOF (see
part VII.F.2 of this Explanation of Provi-
sions).
A transfer of a QOF shareholder’s as-
sets in a qualifying section 381 transaction
also is not an inclusion event, except to
the extent the QOF shareholder transfers
less than all of its qualifying investment
in the transaction, because the successor
to the QOF shareholder will retain a direct
qualifying investment in the QOF. Similar
reasoning extends to a transfer of a QOF
shareholder’s assets in a liquidation to
which section 332 applies, to the extent
that no gain or loss is recognized by the
QOF shareholder on the distribution of the
QOF interest to the 80-percent distributee,
pursuant to section 337(a). This rule does
not apply if the QOF shareholder is an
S corporation and if the qualifying section
381 transaction causes the S corporation
to have an aggregate ownership change
of more than 25 percent (as discussed in
part VII.D.2 of this Explanation of Provi-
sions).
Moreover, the distribution by a QOF
of a subsidiary in a transaction to which
section 355 (or so much of section 356
as relates to section 355) applies is not
an inclusion event if both the distribut-
ing corporation and the controlled cor-
poration qualify as QOFs immediately
after the distribution (qualifying section
355 transaction), except to the extent the
taxpayer receives boot. The Treasury De-
partment and the IRS have determined
that continued deferral under section
1400Z-2(a)(1)(A) is appropriate in the
case of a qualifying section 355 transac-
tion because the QOF shareholder con-
tinues its original direct qualifying in-
vestment, albeit reflected in investments
in two QOF corporations.
Finally, a recapitalization (within the
meaning of section 368(a)(1)(E)) of a
QOF is not an inclusion event, as long
as the QOF shareholder does not receive
boot in the transaction and the transaction
does not reduce the QOF shareholder’s
proportionate interest in the QOF corpo-
ration. Similar rules apply to a transaction
described in section 1036.
2. Boot in a reorganization
An inclusion event generally will oc-
cur if a QOF shareholder receives boot
in a qualifying section 381 transaction in
which a QOF’s assets are acquired by an-
other QOF corporation. Under proposed
§1.1400Z2(b)-1(c), if the taxpayer realiz-
es a gain on the transaction, the amount
that gives rise to the inclusion event is
the amount of gain under section 356 that
is not treated as a dividend (see section
356(a)(2)). A similar rule applies to boot
received by a QOF shareholder in a qual-
ifying section 355 transaction to which
section 356(a) applies. If the taxpayer in
a qualifying section 381 transaction real-
izes a loss on the transaction, the amount
that gives rise to the inclusion event is an
amount equal to the fair market value of
the boot received.
However, if both the target QOF and
the acquiring corporation are wholly and
directly owned by a single shareholder
(or by members of the same consolidated
group), and if the shareholder receives (or
the group members receive) boot with re-
spect to a qualifying investment, proposed
§1.1400Z2(b)-1(c)(8) (applicable to dis-
tributions by QOF corporations) applies
to the boot as if it were distributed in a

Bulletin No. 2019–21 1209 May 20, 2019
separate transaction to which section 301
applies.
Similarly, the corporate distribution
rules of proposed §1.1400Z2(b)-1(c)(8)
would apply to a QOF shareholder’s re-
ceipt of boot in a qualifying section 355
transaction to which section 356(b) ap-
plies. By its terms, section 356(b) states
that the corporate distribution rules of sec-
tion 301 apply if a distributing corpora-
tion distributes both stock of its controlled
corporation and boot. As a result, under
these proposed regulations, there would
be an inclusion event to the extent section
301(c)(3) would apply to the distribution.
The Treasury Department and the IRS
request comments on the proposed treat-
ment of the receipt of boot as an inclusion
event.
If the qualifying section 381 transac-
tion is an intercompany transaction, the
rules in §1.1502-13(f)(3) regarding boot in
a reorganization apply to treat the boot as
received in a separate distribution. These
rules do not apply in cases in which either
party to the distribution becomes a mem-
ber or nonmember as part of the same plan
or arrangement. However, as noted in part
VIII of this Explanation of Provisions, a
qualifying section 355 transaction cannot
be an intercompany transaction.
G. Distributions and Contributions
Under the proposed regulations, and
subject to certain exceptions, distributions
made with respect to qualifying QOF
stock (including redemptions of qualifying
QOF stock that are treated as distributions
to which section 301 applies) and certain
distributions with respect to direct or indi-
rect investments in a QOF partnership are
treated as inclusion events. In the case of
a QOF corporation, an actual distribution
with respect to a qualifying investment re-
sults in inclusion only to the extent it is
treated as gain from a sale or exchange
under section 301(c)(3). A distribution to
which section 301(c)(3) applies results in
inclusion because that portion of the dis-
tribution is treated as gain from the sale
or exchange of property. Actual distribu-
tions treated as dividends under section
301(c)(1) are not inclusion events because
such distributions neither reduce a QOF
shareholder’s direct equity investment in
the QOF nor constitute a “cashing out” of
the QOF shareholder’s equity investment
in the QOF. In turn, actual distributions
to which section 301(c)(2) applies are not
inclusion events because the reduction of
basis under that statutory provision is not
treated as gain from the sale or exchange
of property.
For these purposes, a distribution of
property also includes a distribution of
stock by a QOF that is treated as a dis-
tribution of property to which section 301
applies under section 305(b). The Trea-
sury Department and the IRS have deter-
mined that this type of distribution should
be an inclusion event, even though it does
not reduce the recipient’s interest in the
QOF, because it results in an increase in
the basis of QOF stock. The Treasury De-
partment and the IRS request comments
on the proposed treatment of distributions
to which section 305(b) applies.
In the case of a redemption that is treat-
ed as a distribution to which section 301
applies, the Treasury Department and the
IRS have determined that the full amount
of the redemption generally should be an
inclusion event, regardless of whether a
portion of the redemption proceeds are
characterized as a dividend under section
301(c)(1) or as the recovery of basis under
section 301(c)(2). Otherwise, such a re-
demption could reduce a shareholder’s di-
rect equity investment without triggering
an inclusion event (if the full amount of
the redemption proceeds is characterized
as either a dividend or as the recovery of
basis). However, there are circumstances
in which the shareholder’s interest in the
QOF is not reduced by a redemption (for
example, if the shareholder wholly owns
the distributing corporation). Thus, if a
QOF redeems stock wholly and directly
held by its sole QOF shareholder (or by
members of the same consolidated group),
the proposed regulations do not treat the
redemption as an inclusion event to the
extent the proceeds are characterized as
a dividend under section 301(c)(1) or as
a recovery of basis under section 301(c)
(2). The Treasury Department and the IRS
request comments on the proposed treat-
ment of redemptions that are treated as
distributions to which section 301 applies.
In the case of a QOF partnership, inter-
ests in which are directly or indirectly held
by one or more partnerships, a distribution
by one of the partnerships (including the
QOF partnership) of property with a value
in excess of the basis of the distributee’s
partnership interest is also an inclusion
event. In the absence of this rule, a direct
or indirect partner in a QOF partnership
could dilute the value of its qualifying in-
vestment and thereby reduce the amount
of deferred gain that would be recognized
in a subsequent transaction.
The transfer by a QOF owner of its
qualifying QOF stock or qualifying QOF
partnership interest in a section 351 ex-
change generally would be an inclusion
event under the proposed regulations, be-
cause the contribution would reduce the
QOF owner’s direct interest in the QOF.
However, the contribution by a QOF
shareholder of a portion (but not all) of its
qualifying QOF stock to the QOF itself in
a section 351 exchange would not be so
treated, as long as the contribution does
not reduce the taxpayer’s equity interest in
the qualifying investment (for example, if
the QOF shareholders made pro rata con-
tributions of qualifying QOF stock).
The Treasury Department and the IRS
request comments on the proposed rules
governing inclusion events, including
whether additional rules are needed to
prevent abuse.
VIII. Consolidated Return Provisions
A. QOF Stock is Not Stock for Purposes
of Affiliation
The framework of section 1400Z-2
and the consolidated return regulations
are incompatible in many respects. If a
QOF corporation could be a subsidiary
member of a consolidated group, exten-
sive rules altering the application of many
consolidated return provisions would be
necessary to carry out simultaneously the
policy objectives of section 1400Z-2 and
the consolidated return regulations. For
example, special rules would be required
to take into account the interaction of sec-
tion 1400Z-2 with §§1.1502-13 (relating
to intercompany transactions), 1.1502-32
(relating to the consolidated return invest-
ment adjustment regime), and 1.1502-19
(relating to excess loss accounts).
Section 1400Z-2 is inconsistent with
the intercompany transaction regulations
under §1.1502-13. The stated purpose
of the regulations under §1.1502-13 is

May 20, 2019 1210 Bulletin No. 2019–21
to ensure that the existence of an inter-
company transaction (a transaction be-
tween two members of a consolidated
group) does not result in the creation,
prevention, acceleration, or deferral of
consolidated taxable income or tax li-
ability. In other words, the existence of
the intercompany transaction must not
affect the consolidated taxable income
or tax liability of the group as a whole.
Therefore, §1.1502-13 generally deter-
mines the tax treatment of items resulting
from intercompany transactions by treat-
ing members of the consolidated group
as divisions of a single corporation (sin-
gle-entity treatment).
The deferral of gain permitted un-
der section 1400Z-2 would conflict with
the purposes of §1.1502-13 if the QOF
shareholder and QOF corporation were
members of the same consolidated group.
Under section 1400Z-2, a qualifying in-
vestment in a QOF results in the defer-
ral of the recognition of gain that would
otherwise be recognized. However, al-
lowing a transfer by a member investor
to a member QOF to result in the deferral
of gain recognition directly contradicts
the express purpose of the intercompany
transaction regulations. Therefore, con-
solidation of a QOF corporation with a
corporation that otherwise would be a
QOF shareholder not only would violate
a basic tenet of single-entity treatment,
but also would necessitate the creation of
an elaborate system of additional consol-
idated return rules to establish the proper
tax treatment of intercompany transac-
tions involving a group member that is a
QOF (QOF member). For the same rea-
sons, special rules would be necessary to
address the consequences under section
1400Z-2 of distributions from QOF mem-
bers to other group members. In addition,
special rules would be required to deter-
mine if and how §1.1502-13 would apply
for purposes of testing whether a member
of the group (tested member) met the re-
quirements of section 1400Z-2(d) to con-
tinue to be treated as a QOF following an
intercompany transaction. For example,
such rules would need to address wheth-
er satisfaction of the requirements should
be tested by taking into account not only
property held by the tested member, but
also property held by other members that
have been counterparties in an intercom-
pany transaction.
Section 1400Z-2 is also inconsistent
with the consolidated return investment
adjustment regime. Section 1.1502-32
requires unique adjustments to the basis
of member stock to reflect income, gain,
deduction, and loss items of group mem-
bers. These rules apply only to members
of consolidated groups, and they cause
stock basis in subsidiary members of
consolidated groups to be drastically dif-
ferent from the stock basis that would ex-
ist outside of a group. These investment
adjustment rules would affect the timing
and amount of inclusion of the deferred
capital gain under section 1400Z-2, be-
cause the governing rules under section
1400Z-2 depend on the observance of
very particular stock basis adjustments.
Therefore, significant modifications to
the application of the investment adjust-
ment rules under §1.1502-32 would be
required to implement section 1400Z-2
if the QOF shareholder and QOF corpo-
ration were members of the same group.
Further, the rules of §1.1502-32 are inte-
gral to the application of the consolidated
return system, and it would be virtually
impossible to accurately anticipate all of
the instances in which the special basis
rules should be applied to the QOF mem-
ber, as well as to any includible corpora-
tions owned by the QOF member (such
corporations also would be included in
the group).
As a final example, special rules
would also be needed to harmonize the
excess loss account (ELA) concept es-
tablished by the rules in §1.1502-19 with
the operation of section 1400Z-2. The
consolidated return regulations provide
for downward stock basis adjustments
that take into account distributions by
lower-tier members to higher-tier mem-
bers and the absorption of member losses
by other members of the group. As a re-
sult of these adjustments, a member of a
group may have negative basis (that is,
an ELA) in its stock in another member.
The existence of negative stock basis is
not contemplated under section 1400Z-2,
and it is unique to the consolidated return
regulations. Harmonizing rules would
be required to ensure the special QOF
basis election under section 1400Z-2(c)
would not eliminate an ELA in the stock
of the QOF member and provide a bene-
fit beyond what was intended by section
1400Z-2. In other words, the basis adjust-
ment under section 1400Z-2(c) should
exclude from income no more than the
appreciation in the QOF investment.
In summary, section 1400Z-2 and the
consolidated return system are based on
incompatible principles and rules. To en-
able the two systems to interact in a man-
ner that effectuates the purposes of each,
complicated additional regulations would
be required. However, it is not possible to
anticipate all possible points of conflict.
Therefore, rather than trying to forcibly
harmonize the two frameworks, these pro-
posed regulations treat QOF stock as not
stock for purposes of section 1504, which
sets forth the requirements for corporate
affiliation. Consequently, a QOF C corpo-
ration can be the common parent of a con-
solidated group, but it cannot be a subsid-
iary member of a consolidated group. In
other words, a QOF C corporation owned
by members of a consolidated group is
not a member of that consolidated group.
These proposed regulations treat QOF
stock as not stock for the broad purpose of
section 1504 affiliation.
The Treasury Department and the IRS
request comments on whether this rule
should be limited to treat QOF stock as
not stock only for the purposes of consol-
idation, as well as whether the burden of
potentially applying two different sets of
consolidated return rules would be out-
weighed by benefits of permitting QOF
C corporations to be subsidiary members
of consolidated groups.
B. Separate Entity Treatment for
Members of a Consolidated Group
Qualifying for Deferral under Section
1400Z-2
The proposed regulations clarify that
section 1400Z-2 applies separately to each
member of a consolidated group. Accord-
ingly, to qualify for gain deferral, the same
member of the consolidated group must:
(i) Sell a capital asset to an unrelated per-
son, the gain of which the member elects
to be deferred under section 1400Z-2; and
(ii) invest an amount of such deferred gain
from the original sale into a QOF.

Bulletin No. 2019–21 1211 May 20, 2019
C. Basis Increases in Qualifying
Investment “Tier Up” the
Consolidated Group
Sections 1400Z-2(b)(2)(B)(iii) and (iv)
and 1400Z-2(c) provide special basis ad-
justments applicable to qualifying invest-
ments held for five years, seven years, and
at least 10 years. If the QOF owner is a
member of a consolidated group, proposed
§1.1400Z2(g)-1(c) would treat these basis
adjustments to the qualifying investment
as meeting the requirements of §1.1502-
32(b)(3)(ii)(D), and thus as tax-exempt
income to the QOF owner. Consequently,
upper-tier members that own stock in the
QOF owner would increase their basis in
the stock of the QOF owner by the amount
of the resulting tax-exempt income. The
basis increase under section 1400Z-2(c)
would be treated as tax-exempt income
only if the qualifying investment were
sold or exchanged and the QOF owner
elected to apply the special rule in sec-
tion 1400Z-2(c). Treating these special
basis adjustments under section 1400Z-2
as tax-exempt income to the QOF owner
is necessary to ensure that the amounts at
issue remain tax-free at all levels within
the consolidated group. For example, this
treatment would prevent an unintended in-
come inclusion upon a member’s sale of
the QOF owner’s stock.
D. The Attribute Reduction Rule in
§1.1502-36(d)
These proposed regulations clarify
how a member’s basis in a qualifying
investment is taken into account for pur-
poses of applying the attribute reduction
rule in §1.1502-36(d). When a member
(M) transfers a loss share of subsidiary (S)
stock, the rules in §1.1502-36 apply. If the
transferred S share is a loss share after the
application of §1.1502-36(b) and (c), the
attribute reduction rule in §1.1502-36(d)
applies to prevent duplication of a single
economic loss. In simple terms, §1.1502-
36(d) compares M’s basis in the loss S
share to the amount of S’s tax attributes
that are allocable to the loss share. If loss
duplication exists on the transfer of the S
share (as determined under the mechanics
of §1.1502-36(d)), S must reduce its tax
attributes by its attribute reduction amount
(ARA). In certain cases, M instead may
elect to reduce its basis in the loss S share.
To ensure that the purposes of both sec-
tion 1400Z-2 and §1.1502-36(d) are effec-
tuated, the proposed regulations provide
special rules regarding the application of
§1.1502-36(d) when S owns a qualifying
investment.
In applying the anti-loss duplication
rule discussed in the preceding paragraph,
S includes its basis in a qualifying invest-
ment in determining whether there is loss
duplication and, if so, the amount of the
duplicated loss. However, if loss duplica-
tion exists, S cannot cure the loss duplica-
tion by reducing its basis in the qualifying
investment under §1.1502-36(d). Because
of the special QOF basis election available
under section 1400Z-2(c), reducing S’s
basis in the qualifying investment would
not achieve the anti-loss duplication pur-
pose of §1.1502-36(d) if the special QOF
basis election were made at a later date.
This is because any basis reduced under
§1.1502-36(d) would be restored on the
sale of the qualifying investment. There-
fore, S must reduce its other attributes.
If S’s attribute reduction amount exceeds
S’s attributes available for reduction, then
the parent of the group is deemed to elect
under §1.1502-36(d)(6) to reduce M’s ba-
sis in S to the extent of S’s basis in the
qualifying investment. The reduction of
M’s basis in S is limited to the remaining
ARA.
IX. Holding Periods and Other Tacking
Rules
Under section 1400Z-2(b)(2)(B) and
(c), increases in basis in a qualifying in-
vestment held by an investor in a QOF
are, in part, dependent upon the QOF in-
vestor’s holding period for that qualify-
ing investment. The proposed regulations
generally provide that, for purposes of
section 1400Z-2(b)(2)(B) and (c), a QOF
investor’s holding period for its qualify-
ing investment does not include the peri-
od during which the QOF investor held
property that was transferred to the QOF
in exchange for the qualifying investment.
For example, if an investor transfers a
building that it has owned for 10 years to
a QOF corporation in exchange for qual-
ifying QOF stock, the investor’s holding
period for the qualifying QOF stock for
purposes of section 1400Z-2 begins on the
date of the transfer, not the date the inves-
tor acquired the building.
Similarly, if an investor disposes of its
entire qualifying investment in QOF 1 and
reinvests in QOF 2 within 180 days, the
investor’s holding period for its qualifying
investment in QOF 2 begins on the date
of its qualifying investment in QOF 2, not
on the date of its qualifying investment in
QOF 1.
However, a QOF shareholder’s holding
period for qualifying QOF stock received
in a qualifying section 381 transaction in
which the acquiring corporation is a QOF
immediately thereafter, or received in a
recapitalization of a QOF, includes the
holding period of the QOF shareholder’s
qualifying QOF stock exchanged therefor.
Similar rules apply to QOF stock received
in a qualifying section 355 transaction.
The Treasury Department and the IRS
have determined that, in these situations,
a QOF shareholder should be permitted to
tack its holding period for its initial qual-
ifying investment because the investor’s
direct equity investment in a QOF contin-
ues. In the case of a qualifying section 381
transaction in which the acquiring corpo-
ration is a QOF immediately thereafter,
the investor’s continuing direct equity in-
vestment in a QOF is further reflected in
the investor’s exchanged basis in the stock
of the acquiring corporation. Tacked hold-
ing period rules apply in the same manner
with respect to a QOF partner’s interest
in a QOF partnership, for example, in the
case of a partnership merger where the
QOF partner’s resulting investment in the
QOF partnership continues. Finally, the
recipient of a qualifying investment by
gift that is not an inclusion event, or by
reason of the death of the owner, may tack
the donor’s or decedent’s holding period,
respectively.
Similar rules apply for purposes of
determining whether the “original use”
requirement in section 1400Z-2(d)(2)(D)
commences with the acquiring corpora-
tion (after a qualifying section 381 trans-
action in which the acquiring corporation
is a QOF immediately thereafter) or the
controlled corporation (after a qualifying
section 355 transaction). In each case, the
acquiring corporation or the controlled
corporation satisfies the original use re-
quirement if the target corporation or the
distributing corporation, respectively,

May 20, 2019 1212 Bulletin No. 2019–21
did so before the transaction. Thus, the
acquiring corporation and the controlled
corporation may continue to treat the his-
toric qualified opportunity zone business
property received from the target corpo-
ration and the distributing corporation,
respectively, as qualified opportunity zone
business property.
X. General Anti-Abuse Rule
Proposed §1.1400Z2(f)-1(c) provides a
general anti-abuse rule pursuant to section
1400Z-2(e)(4)(C), which provides that
“the Secretary shall prescribe such regula-
tions as may be necessary or appropriate to
carry out the purposes of this section, in-
cluding * * * rules to prevent abuse.” The
Treasury Department and the IRS expect
that most taxpayers will apply the rules
in section 1400Z-2 and §§1.1400Z2(a)-
1 through 1.1400Z2(g)-1 in a manner
consistent with the purposes of section
1400Z-2. However, to prevent abuse, pro-
posed §1.1400Z2(f)-1(c) provides that if
a significant purpose of a transaction is
to achieve a tax result that is inconsistent
with the purposes of section 1400Z-2, the
Commissioner can recast a transaction (or
series of transactions) for Federal tax pur-
poses as appropriate to achieve tax results
that are consistent with the purposes of
section 1400Z-2. Whether a tax result is
inconsistent with the purposes of section
1400Z-2 must be determined based on all
the facts and circumstances. For example,
this general anti-abuse rule could apply to
a treat a purchase of agricultural land that
otherwise would be qualified opportunity
zone business property as a purchase of
non-qualified opportunity zone business
property if a significant purpose for that
purchase were to achieve a tax result in-
consistent with the purposes of section
1400Z-2 (see part I.B of this Explanation
of Provisions).
The Treasury Department and the IRS
request comments on this proposed an-
ti-abuse rule, including whether addition-
al details regarding what tax results are
inconsistent with the purposes of section
1400Z-2 is required or whether examples
of particular types of abusive transactions
would be helpful.
XI. Entities Organized under a Statute of
a Federally Recognized Indian Tribe
and Issues Particular to Tribally
Leased Property
Commenters have asked whether Indi-
an tribal governments, like state and ter-
ritorial governments, can charter a part-
nership or corporation that is eligible to
be a QOF. Proposed §1.1400Z2(d)-1(e)
(1) provides that, if an entity is not orga-
nized in one of the 50 states, the District
of Columbia, or the U.S. possessions, it
is ineligible to be a QOF. Similarly, pro-
posed §1.1400Z2(d)-1(e)(2) provides
that, if an entity is not organized in one of
the 50 states, the District of Columbia, or
the U.S. possessions, an equity interest in
the entity is neither qualified opportuni-
ty zone stock nor a qualified opportunity
zone partnership interest. The Treasury
Department and the IRS have determined
that, for purposes of both proposed
§1.1400Z2(d)-1(e)(1) and (2), an entity
“organized in” one of the 50 states in-
cludes an entity organized under the law
of a Federally recognized Indian tribe if
the entity’s domicile is located in one of
the 50 states. Such entity satisfies the re-
quirement in section 1400Z-2(d)(2)(B)(i)
and (C) that qualified opportunity zone
stock is stock in a domestic corporation
and a qualified opportunity zone partner-
ship interest is an interest in a domestic
partnership. See section 7701(a)(4). The
Treasury Department and the IRS, while
acknowledging the sovereignty of feder-
ally recognized Indian tribes, note that an
entity that is eligible to be a QOF will be
subject to Federal income tax under the
Code, regardless of the laws under which
it is established or organized.
Commenters also noted that Indian
tribal governments occupy Federal trust
lands, and that these lands are often leased
for economic development purposes. Ac-
cording to these commenters, the right to
use Indian tribal government reservation
land managed by the Secretary of the Inte-
rior can raise unique issues with respect to
lease valuations. As discussed in part II of
this Explanation of Provisions, these pro-
posed regulations address the treatment of
leased tangible property in general.
In order to obtain tribal input in accor-
dance with Executive Order 13175, “Con-
sultation and Coordination with Indian
Tribal Governments,” and consistent with
Treasury’s Tribal Consultation Policy (80
FR 57434, September 23, 2015), the Trea-
sury Department and the IRS will schedule
Tribal Consultation with Tribal Officials
before finalizing these regulations to ob-
tain additional input, within the meaning
of the Tribal Consultation Policy, on QOF
entities organized under the law of a Fed-
erally recognized Indian tribe and whether
any additional guidance may be needed
regarding QOFs leasing tribal government
Federal trust lands or regarding leased real
property located on such lands, as well as
other Tribal implications of the proposed
regulations. Such Tribal Consultation will
also seek input on questions regarding the
tax status of certain tribally chartered cor-
porations other than QOFs.
Proposed Effective/Applicability Dates
Section 7805(b)(1)(A) and (B) of the
Code generally provides that no tempo-
rary, proposed, or final regulation relating
to the internal revenue laws may apply to
any taxable period ending before the ear-
liest of (A) The date on which such regu-
lation is filed with the Federal Register;
or (B) in the case of a final regulation, the
date on which a proposed or temporary
regulation to which the final regulation
relates was filed with the Federal Regis-
ter. However, section 7805(b)(2) provides
that regulations filed or issued within 18
months of the date of the enactment of the
statutory provision to which they relate are
not prohibited from applying to taxable
periods prior to those described in section
7805(b)(1). Furthermore, section 7805(b)
(3) provides that the Secretary may pro-
vide that any regulation may take effect or
apply retroactively to prevent abuse.
Consistent with authority provided by
section 7805(b)(1)(A), the rules of pro-
posed §§1.1400Z2(a)-1, 1.1400Z2(b)-
1, 1.1400Z2(c)-1, 1.1400Z2(d)-1,
1.1400Z2(e)-1, 1.1400Z2(f)-1, and
1.1400Z2(g)-1 generally apply to tax-
able years ending after May 1, 2019.
However, taxpayers may generally rely

Bulletin No. 2019–21 1213 May 20, 2019
on the rules of proposed §§1.1400Z2(a)-
1, 1.1400Z2(b)-1, 1.1400Z2(d)-1,
1.1400Z2(e)-1, 1.1400Z2(f)-1, and
1.1400Z2(g)-1 set forth in this notice of
proposed rulemaking for periods prior to
the finalization of those sections if they
apply these proposed rules consistently
and in their entirety. This pre-finalization
reliance does not apply to the rules of pro-
posed §1.1400Z2(c)-1 set forth in this no-
tice of proposed rulemaking as these rules
do not apply until January 1, 2028.
Special Analyses
I. Regulatory Planning and Review
Executive Orders 13771, 13563, and
12866 direct agencies to assess the costs
and benefits of available regulatory alter-
natives and, if regulation is necessary, to
select regulatory approaches that maxi-
mize net benefits (including potential eco-
nomic, environmental, public health and
safety effects, distributive impacts, and
equity). Executive Order 13563 empha-
sizes the importance of quantifying both
costs and benefits, reducing costs, harmo-
nizing rules, and promoting flexibility.
These proposed regulations have been
designated by the Office of Management
and Budget’s Office of Information and
Regulatory Affairs (OIRA) as economi-
cally significant under Executive Order
12866 pursuant to the Memorandum of
Agreement (April 11, 2018) between the
Treasury Department and the Office of
Management and Budget regarding the re-
view of tax regulations. Accordingly, the
proposed regulations have been reviewed
by the Office of Management and Bud-
get. In addition, the Treasury Department
and the IRS expect the proposed regula-
tions, when final, to be an Executive Or-
der 13771 deregulatory action and request
comment on this designation.
A. Background and Overview
Congress enacted section 1400Z-2, in
conjunction with section 1400Z-1, as a
temporary provision to encourage private
sector investment in certain lower-income
communities designated as qualified op-
portunity zones (see Senate Committee on
Finance, Explanation of the Bill, at 313
(November 22, 2017)). Taxpayers may
elect to defer the recognition of capital
gain to the extent of amounts invested in
a QOF, provided that such amounts are
invested during the 180-day period begin-
ning on the date such capital gain would
have been recognized by the taxpayer.
Inclusion of the deferred capital gain in
income occurs on the date the investment
in the QOF is sold or exchanged or on De-
cember 31, 2026, whichever comes first.
For investments in a QOF held longer than
five years, taxpayers may exclude 10 per-
cent of the deferred gain from inclusion in
income, and for investments held longer
than seven years, taxpayers may exclude
a total of 15 percent of the deferred gain
from inclusion in income. In addition, for
investments held longer than 10 years,
the post-acquisition gain on the qualify-
ing investment in the QOF also may be
excluded from income through a step-up
in basis in the qualifying investment. In
turn, a QOF must hold at least 90 percent
of its assets in qualified opportunity zone
property, as measured by the average per-
centage of assets held on the last day of
the first 6-month period of the taxable year
of the fund and on the last day of the tax-
able year. The statute requires a QOF that
fails this 90-percent test to pay a penalty
for each month it fails to satisfy this re-
quirement.
The proposed regulations clarify sever-
al terms used in the statute, such as what
constitutes “substantially all” in each of
the different places that phrase is used
in section 1400Z-2, the use of qualified
opportunity zone business property (in-
cluding leased property) in a qualified
opportunity zone, the sourcing of income
to a qualified opportunity zone business,
the “reasonable period” for a QOF to re-
invest proceeds from the sale of qualify-
ing assets without paying a penalty, and
what transactions comprise an inclusion
event that would lead to the inclusion of
deferred gain in gross income. In part, the
proposed regulations amend portions of
previously proposed regulations related to
section 1400Z-2.
B. Need for the Proposed Regulations
The Treasury Department and the IRS
are aware of concerns raised by com-
menters that investors have been reticent
to make substantial investments in QOFs
without first having additional clarity on
which investments in a QOF would quali-
fy to receive the preferential tax treatment
specified by the TCJA. This uncertainty
could reduce the amount of investment
flowing into lower-income communities
designated as qualified opportunity zones.
The lack of additional clarity could also
lead to different taxpayers interpreting,
and therefore applying, the same statute
differently, which could distort the allo-
cation of investment across the qualified
opportunity zones.
C. Economic Analysis
1. Baseline
The Treasury Department and the IRS
have assessed the benefits and costs of the
proposed regulations relative to a no-ac-
tion baseline reflecting anticipated Feder-
al income tax-related behavior in the ab-
sence of these proposed regulations.
2. Economic Effects of the Proposed
Regulation
a. Summary of Economic Effects
The proposed regulations provide cer-
tainty and clarity to taxpayers regarding
utilization of the tax preference for capital
gains provided in section 1400Z-2 by de-
fining terms, calculations, and acceptable
forms of documentation. The Treasury
Department and the IRS project that this
added clarity generally will encourage
taxpayers to invest in QOFs and will in-
crease the amount of investment located in
qualified opportunity zones. The Treasury
Department and the IRS have not made
quantitative estimates of these effects.
The benefits and costs of major, spe-
cific provisions of these proposed regu-
lations relative to the no-action baseline
and alternatives to these proposed rules
considered by the Treasury Department
and the IRS are discussed in further detail
below.
b. Qualified Opportunity Zone Busi-
ness Property and Definition of Substan-
tially All
The proposed regulations establish
the threshold for satisfying the substan-
tially all requirements for four out of the
five uses of the term in section 1400Z-2.
The other substantially all test in section
1400Z-2(d)(3)(A)(i) already had been set
at 70 percent by prior proposed regula-
tions (83 FR 54279, October 29, 2018).

May 20, 2019 1214 Bulletin No. 2019–21
The proposed regulations provide that the
term substantially all means at least 90
percent with regard to the three holding
period requirements in section 1400Z-2(d)
(2). The other substantially all term in sec-
tion 1400Z-2(d)(2)(D)(i)(III) in the con-
text of “use” is set to 70 percent, the same
as the threshold established under the pri-
or proposed rulemaking. The clarity pro-
vided in the proposed regulations reduces
uncertainty for prospective investors re-
garding which investments would satisfy
the requirements of section 1400Z-2. This
clarity likely would lead to a greater level
of investment in QOFs.
In choosing what values to assign to
the substantially all terms, the Treasury
Department and the IRS considered the
costs and benefits of setting the thresh-
old higher or lower. Setting the threshold
higher would limit the type of business-
es and investments that would be able to
meet the proposed requirements and pos-
sibly distort the industry concentration
within some opportunity zones. Setting
the threshold lower would allow investors
in certain QOFs to receive capital gains
tax relief while placing a relatively small
portion of its investment within a qualified
opportunity zone. A lower threshold would
increase the likelihood that a taxpayer
may receive the benefit of the preferential
treatment on capital gains without placing
in service more tangible property within
a qualified opportunity zone than would
have occurred in the absence of section
1400Z-2. This latter concern is magnified
by the way the different requirements in
section 1400Z-2 interact.
For example, these regulations imply
that a QOF could satisfy the substantial-
ly all standards with as little as 40 percent
of the tangible property effectively owned
by the fund being used within a qualified
opportunity zone. This could occur if 90
percent of QOF assets are invested in a
qualified opportunity zone business, in
which 70 percent of the tangible assets
of that business are qualified opportunity
zone business property; and if, in addition,
the qualified opportunity zone business
property is only 70 percent in use within a
qualified opportunity zone, and for 90 per-
cent of the holding period for such proper-
ty. Multiplying these shares together (0.9
x 0.7 x 0.7 x 0.9 = 0.4) generates the result
that a QOF could satisfy the requirements
of section 1400Z-2 under the proposed
regulations with just 40 percent of its as-
sets effectively in use within a qualified
opportunity zone.
The Treasury Department and the IRS
recognize that the operations of certain
types of businesses may extend beyond the
Census tract boundaries that define quali-
fied opportunity zones. The substantially
all thresholds provided in the proposed
regulations are set at levels so as to limit
the ability of investors in QOFs to receive
preferential capital gains treatment, unless
a consequential amount of tangible prop-
erty used in the underlying business is lo-
cated within a qualified opportunity zone,
while also allowing flexibility to business
operations so as not to significantly distort
the types of businesses that can qualify for
opportunity zone funds.
c. Valuation of Leased Property
The proposed regulations provide two
methods for determining the asset val-
ues for purposes of the 90-percent asset
test in section 1400Z-2(d)(1) for QOFs
or the value of tangible property for the
substantially all test in section 1400Z-2(d)
(3)(A)(i) for qualified opportunity zone
businesses. Under the first method, a tax-
payer may value owned or leased proper-
ty as reported on its applicable financial
statement for the reporting period. Alter-
natively, the taxpayer may set the value of
owned property equal to the unadjusted
cost basis of the property under section
1012. The value of leased property under
the alternative method equals the present
value of total lease payments at the begin-
ning of the lease. The value of the prop-
erty under the alternative method for the
90-percent asset test and substantially all
test does not change over time as long as
the taxpayer continues to own or lease the
property.
The two methods should provide sim-
ilar values for leased property at the time
that the lease begins, as beginning in 2019,
generally accepted accounting principles
(GAAP) require public companies to cal-
culate the present value of lease payments
in order to recognize the value of leased
assets on the balance sheet. However,
there are differences. On financial state-
ments, the value of the leased property de-
clines over the term of the lease. Under the
alternative method, the value of the leased
asset is calculated once at the beginning of
the lease term and remains constant while
the term of the lease is still in effect. This
difference in valuation of property over
time between using financial statements
and the alternative method also exist in
the case of owned property. In addition,
the two approaches would generally apply
different discount rates, thus leading to
some difference in the calculated present
value under the two methods.
The Treasury Department and the IRS
provide the alternative method to allow
for taxpayers that either do not have appli-
cable financial statements or do not have
them available in time for the asset test.
In addition, the alternative method is sim-
pler, thus reducing compliance costs, and
would provide greater certainty in project-
ing future compliance with the 90-percent
asset and substantially all tests. Thus,
some taxpayers with applicable financial
statements may elect to use the alternative
method. The drawback to the alternative
method is that it does not account for de-
preciation, and, over time, the values used
for the sake of the 90-percent asset test
and the substantially all test may diverge
from the actual value of the property.
The Treasury Department and the IRS
have determined that the value of leased
property should be included in both the
numerator and the denominator of the
90-percent asset test and the substantial-
ly all test, as this would be less distortive
to business decisions compared to other
available options. Leasing is a common
business practice, and treating leased
property differently than owned property
could lead to economic distortions. If the
value of leased property were not included
in the tests at all, then it would be relative-
ly easy for taxpayers to choose where to
locate owned and leased property so as to
technically meet the standards of the test,
while maintaining substantial business op-
erations outside of a qualified opportunity
zone.
The Treasury Department and the IRS
considered a third option for how leased
property should be included in the 90-per-
cent asset and substantially all tests. Under
this option, leased property of the taxpay-
er would be included only in the denomi-
nator of the fraction. The reason for this is
that leased property generally would not
satisfy the purchase and original use re-
quirements of section 1400Z-2(d)(2)(D)(i)

Bulletin No. 2019–21 1215 May 20, 2019
and thus would not be deemed as qualified
opportunity zone business property. How-
ever, not allowing leased property located
within a qualified opportunity zone to be
treated as qualified opportunity zone busi-
ness property could distort business deci-
sions of taxpayers and also could make it
difficult for some businesses to satisfy the
substantially all test in section 1400Z-2(d)
(3)(A)(i), despite bringing new economic
activity to a qualified opportunity zone.
For example, a start-up business that
rented office space within a qualified op-
portunity zone and owned tangible prop-
erty in the form of computers and other
office equipment likely would fail the sub-
stantially all test if leased property only
were included in the denominator of the
substantially all fraction, despite all of its
operations being located within a qualified
opportunity zone. This may lead business-
es to take on extra debt in order to pur-
chase property located within a qualified
opportunity zone, thus increasing the risk
of financial distress, including bankruptcy.
One potential disadvantage of includ-
ing leased property in both the numerator
and denominator of the substantially all
test is that it may weaken the incentive to
construct new real property or renovate
existing real property within a qualified
opportunity zone, as taxpayers would be
able to lease existing real property in a
zone without improving it and become a
qualified opportunity zone business. How-
ever, allowing the leasing of existing real
property within a zone may encourage
fuller utilization and improvement of such
property and limit the abandonment or de-
struction of existing productive property
within a qualified opportunity zone when
new tax-favored real property becomes
available.
Hence, including leased property in
both the numerator and the denominator
of the 90-percent asset test and substan-
tially all test encourages economic ac-
tivity within qualified opportunity zones
while reducing the potential distortions
between owned and leased property that
may occur under other options.
d. Qualified Opportunity Zone Busi-
ness
Section 1400Z-2(d)(3)(A)(ii) incorpo-
rates the requirement of section 1397C(b)
(2) that a qualified business entity must
derive at least 50 percent of its total gross
income during a taxable year from the ac-
tive conduct of a qualified business in a
zone. The proposed regulations provide
multiple safe harbors for determining
whether this standard has been satisfied.
Two of these safe harbors provide dif-
ferent methods for measuring the labor
input of the entity. The labor input can be
measured in terms of hours or compensa-
tion paid. The proposed regulations pro-
vide that if at least 50 percent of the labor
input of the entity is located within a zone
(as measured by one of the two provided
approaches), then the section 1397C(b)(2)
requirement is satisfied.
In addition, a third safe harbor provides
that the 50 percent gross income require-
ment is met if the tangible property of the
trade or business located in a qualified op-
portunity zone and the management or op-
erational functions performed in the qual-
ified opportunity zone are each necessary
for the generation of at least 50 percent of
the gross income of the trade or business.
The determination of the location of
income for businesses that operate in mul-
tiple jurisdictions can be complex, and the
rules promulgated by taxing authorities to
determine the location of income are of-
ten burdensome and may distort economic
activity. The provision of alternative safe
harbors in these proposed regulations
should reduce the compliance and admin-
istrative burdens associated with deter-
mining whether this statutory requirement
has been met. In the absence of such safe
harbors, some taxpayers may interpret the
50 percent of gross income standard to
require that a majority of the sales of the
entity must be located within a zone. The
Treasury Department and the IRS have
determined that a standard based strictly
on sales would discriminate against some
types of businesses (for example, manu-
facturing) in which the location of sales
is often different from the location of
the production, and thus would preclude
such businesses from benefitting from
the incentives provided in section 1400Z-
2. Furthermore, the potential distortions
introduced by the provided safe harbors
would increase incentives to locate labor
inputs within a qualified opportunity zone.
To the extent that such distortions exist,
they further the statutory goal of encour-
aging economic activity within qualified
opportunity zones. Given the flexibility
provided to taxpayers in choosing a safe
harbor, other distortions, such as to busi-
ness organizational structuring, are likely
to be minimal.
e. QOF Reinvestment Rule
The proposed regulations provide that
a QOF has 12 months from the time of the
sale or disposition of qualified opportuni-
ty zone property or the return of capital
from investments in qualified opportunity
zone stock or qualified opportunity zone
partnership interests to reinvest the pro-
ceeds in other qualified opportunity zone
property before the proceeds would not
be considered qualified opportunity zone
property with regards to the 90-percent
asset test. This proposed rule provides
clarity and gives substantial flexibility to
taxpayers in satisfying the 90-percent as-
set test, which should encourage greater
investment within QOFs compared to the
baseline.
f. Other Topics
The proposed regulations clarify sever-
al other areas where there is uncertainty in
how to apply the statute in practice. For
example, the proposed regulations clari-
fy what events cause the inclusion of de-
ferred gain, that a QOF may not be a sub-
sidiary member of a consolidated group,
and how to determine the length of hold-
ing periods in a qualifying investment.
These proposed regulations provide great-
er certainty to taxpayers regarding how to
structure investments so as to comply with
the statutory requirements of the opportu-
nity zone incentive. This should reduce
administration and compliance costs and
encourage greater investment in QOFs.
D. Paperwork Reduction Act
The proposed regulation estab-
lishes a new collection of informa-
tion in §1.1400Z2(b)-1(h). In proposed
§1.1400Z2(b)-1(h)(1), the collection of
information requires (i) a partnership
that makes a deferral election to notify
all of its partners of the deferral election,
and (ii) a partner that makes a defer-
ral election to notify the partnership in
writing of its deferral election, including
the amount of the eligible gain deferred.
Similar requirements are set forth in pro-
posed §1.1400Z2(b)-1(h)(4) regarding
S corporations and S corporation share-
holders. The collection of information in
proposed §1.1400Z2(b)-1(h)(2) requires
direct and indirect owners of a QOF

May 20, 2019 1216 Bulletin No. 2019–21
partnership to provide the QOF partner-
ship with a written statement containing
information requested by the QOF part-
nership that is necessary to determine
the direct and indirect owners’ shares of
deferred gain. Lastly, the collection of
information in proposed §1.1400Z2(b)-
1(h)(3) requires a QOF partner to notify
the QOF partnership of an election under
section 1400Z-2(c) to adjust the basis of
the qualifying QOF partnership interest
that is disposed of in a taxable transaction.
Similar requirements again are set forth in
proposed §1.1400Z2(b)-1(h)(4) regarding
QOF S corporations and QOF S corpora-
tion shareholders. The collection of infor-
mation contained in this proposed regula-
tion will not be conducted using a new or
existing IRS form.
The likely respondents are partnerships
and partners, and S corporations and S
corporation shareholders.
Estimated total annual reporting bur-
den: 8,500 hours.
Estimated average annual burden per
respondent: 1 hour.
Estimated number of respondents:
8,500.
Estimated frequency of responses:
8,500.
The collections of information con-
tained in this notice of proposed rulemak-
ing will be submitted to the Office of Man-
agement and Budget in accordance with
the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)). Comments on the collec-
tion of information should be sent to the
Office of Management and Budget, Attn:
Desk Officer for the Department of the
Treasury, Office of Information and Reg-
ulatory Affairs, Washington, DC 20503,
with copies to the Internal Revenue Ser-
vice, Attn: IRS Reports Clearance Officer,
SE:W:CAR:MP:T:T:SP, Washington, DC
20224. Comments on the collection of
information should be received by July 1,
2019. Comments are specifically request-
ed concerning:
Whether the proposed collection of in-
formation is necessary for the proper per-
formance of the functions of the IRS, in-
cluding whether the information will have
practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information;
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with
the proposed collection of information
may be minimized, including through the
application of automated collection tech-
niques or other forms of information tech-
nology; and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of services to provide informa-
tion.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget.
II.Regulatory Flexibility Act
Under the Regulatory Flexibility Act
(RFA) (5 U.S.C. chapter 6), it is hereby
certified that these proposed regulations,
if adopted, would not have a significant
economic impact on a substantial number
of small entities that are directly affected
by the proposed regulations.
As discussed elsewhere in this pre-
amble, the proposed regulations would
provide certainty and clarity to taxpayers
regarding utilization of the tax prefer-
ence for capital gains provided in section
1400Z-2 by defining terms, calculations,
and acceptable forms of documentation.
The Treasury Department and the IRS
anticipate that this added clarity gener-
ally will encourage taxpayers to invest
in QOFs and will increase the amount of
investment located in qualified opportuni-
ty zones. Investment in QOFs is entirely
voluntary, and the certainty that would
be provided in the proposed regulations
is anticipated to minimize any compli-
ance or administrative costs, such as the
estimated average annual burden (1 hour)
under the Paperwork Reduction Act. For
example, the proposed regulations pro-
vide multiple safe harbors for purpose of
determining whether the 50-percent gross
income test has been met as required by
section 1400Z-2(d)(3)(A)(ii) for a quali-
fied opportunity zone business.
Taxpayers affected by these proposed
regulations include QOFs, investors in
QOFs, and qualified opportunity zone
businesses in which a QOF holds an own-
ership interest. The proposed regulations
will not directly affect the taxable in-
comes and liabilities of qualified opportu-
nity zone businesses; they will affect only
the taxable incomes and tax liabilities of
QOFs (and owners of QOFs) that invest
in such businesses. Although there is a
lack of available data regarding the extent
to which small entities invest in QOFs,
will certify as QOFs, or receive equity
investments from QOFs, the Treasury
Department and the IRS project that most
of the investment flowing into QOFs will
come from large corporations and wealthy
individuals, though some of these funds
would likely flow through an intermedi-
ary investment partnership. It is expected
that some QOFs and qualified opportu-
nity zone businesses would be classified
as small entities; however, the number of
small entities significantly affected is not
likely to be substantial.
Accordingly, it is hereby certified that
this rule would not have a significant eco-
nomic impact on a substantial number of
small entities. The Treasury Department
and the IRS specifically invite comments
from any party, particularly affected small
entities, on the accuracy of this certifica-
tion.
Pursuant to section 7805(f), this notice
of proposed rulemaking has been submit-
ted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business.
III. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 (UMRA) requires
that agencies assess anticipated costs and
benefits and take certain other actions be-
fore issuing a final rule that includes any
Federal mandate that may result in expen-
ditures in any one year by a state, local, or
tribal government, in the aggregate, or by
the private sector, of $100 million in 1995
dollars, updated annually for inflation.
In 2018, that threshold is approximately
$150 million. This rule does not include
any Federal mandate that may result in ex-
penditures by state, local, or tribal govern-
ments, or by the private sector in excess of
that threshold.

Bulletin No. 2019–21 1217 May 20, 2019
I V.Executive Order 13132: Federalism
Executive Order 13132 (entitled
“Federalism”) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes
substantial, direct compliance costs on
state and local governments, and is not
required by statute, or preempts state law,
unless the agency meets the consultation
and funding requirements of section 6 of
the Executive Order. This proposed rule
does not have federalism implications and
does not impose substantial direct compli-
ance costs on state and local governments
or preempt state law within the meaning
of the Executive Order.
Statement of Availability of IRS
Documents
IRS Revenue Procedures, Revenue
Rulings, and Notices cited in this pream-
ble are published in the Internal Revenue
Bulletin (or Cumulative Bulletin) and are
available from the Superintendent of Doc-
uments, U.S. Government Publishing Of-
fice, Washington, DC 20402, or by visit-
ing the IRS web site at http://www.irs.gov.
Comments
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any electronic and writ-
ten comments that are submitted timely
to the IRS as prescribed in this preamble
under the “ADDRESSES” heading. The
Treasury Department and the IRS request
comments on all aspects of the proposed
rules. All comments will be available at
http://www.regulations.gov or upon re-
quest.
Drafting Information
The principal authors of these pro-
posed regulations are Erika C. Reigle and
Kyle Griffin, Office of the Associate Chief
Counsel (Income Tax & Accounting); Jer-
emy Aron-Dine and Sarah Hoyt, Office of
the Associate Chief Counsel (Corporate);
and Marla Borkson and Sonia Kothari,
Office of the Associate Chief Counsel
(Passthroughs and Special Industries).
Other personnel from the Treasury De-
partment and the IRS participated in their
development.
List of Subjects in 26 CFR Part 1
Income Taxes, Reporting and record-
keeping requirements.
Partial Withdrawal of a Notice of
Proposed Rulemaking
Accordingly, under the authority
of 26 U.S.C. 1400Z-2(e)(4) and 7805,
§1.1400Z2(d)-1(c)(4)(i), (c)(5), (6), and
(7), (d)(2)(i)(A), (d)(2)(ii) and (iii), (d)(5)
(i), and (d)(5)(ii)(B) of the notice of pro-
posed rulemaking (REG-115420-18) pub-
lished in the Federal Register on October
29, 2018 (83 FR 54279) are withdrawn.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
Part 1—INCOME TAX
Paragraph 1. The authority citation
for part 1 is amended by adding entries
in numerical order for §§ 1.1400Z2(a)-
1, 1.1400Z2(b)-1, 1.1400Z2(c)-
1, 1.1400Z2(d)-1, 1.1400Z2(f)-1,
1.1400Z2(g)-1(a), (c), (d), (e), (f), and
(g)(1), 1.1400Z2(g)-1(b) and (g)(2), and
1.1400Z2(g)-1(b) and (g)(2) to read in
part as follows:
Authority: 26 U.S.C. 7805***
Section 1.1400Z2(a)-1 also issued un-
der 26 U.S.C. 1400Z-2(e)(4).
Section 1.1400Z2(b)-1 also issued un-
der 26 U.S.C. 1400Z-2(e)(4).
Section 1.1400Z2(c)-1 also issued un-
der 26 U.S.C. 1400Z-2(e)(4) and 857(g)
(2).
Section 1.1400Z2(d)-1 also issued un-
der 26 U.S.C. 1400Z-2(e)(4).
Section 1.1400Z2(f)-1 also issued un-
der 26 U.S.C. 1400Z-2(e)(4).
Section 1.1400Z2(g)-1(a), (c), (d), (e),
(f), and (g)(1) also issued under 26 U.S.C.
1400Z-2(e)(4) and 1502.
Section 1.1400Z2(g)-1(b) and (g)(2)
also issued under 26 U.S.C. 1400Z-2(e)
(4) and 1504(a)(5).
Par. 2. Section 1.1400Z2(a)-1, as
proposed to be added by 83 FR 54279,
October 29, 2018 is amended by:
1. Redesignating (b)(2)(iii) and (iv) as
paragraphs (b)(2)(v) and (vi), respective-
ly.
2. Adding new paragraphs (b)(2)(iii)
and (iv) and paragraphs (b)(9) and (10).
The revisions and additions read as fol-
lows:
§1.1400Z2(a)-1 Deferring tax on cap-
ital gains by investing in opportunity
zones.
* * * * *
(b) * * *
(2) * * *
(iii) Gains from section 1231 property.
The only gain arising from section 1231
property that is eligible for deferral under
section 1400Z-2(a)(1) is capital gain net
income for a taxable year. This net amount
is determined by taking into account the
capital gains and losses for a taxable year
on all of the taxpayer’s section 1231 prop-
erty. The 180-day period described in
paragraph (b)(4) of this section with re-
spect to any capital gain net income from
section 1231 property for a taxable year
begins on the last day of the taxable year.
(iv) No deferral for gain realized upon
the acquisition of an eligible interest.
Gain is not eligible for deferral under sec-
tion 1400Z-2(a)(1) if such gain is realized
upon the sale or other transfer of property
to a QOF in exchange for an eligible in-
terest (see paragraph (b)(10)(i)(C) of this
section) or the transfer of property to an
eligible taxpayer in exchange for an eligi-
ble interest (see paragraph (b)(10)(iii) of
this section).
* * * * *
(9) Making an investment for purposes
of an election under section 1400Z-2(a)—
(i) Transfer of cash or other proper-
ty to a QOF. A taxpayer makes an in-
vestment for purposes of an election
under section 1400Z-2(a)(1)(A) (section
1400Z-2(a)(1)(A) investment) by trans-
ferring cash or other property to a QOF in
exchange for eligible interests in the QOF,
regardless of whether the transfer is one in
which the transferor would recognize gain
or loss on the property transferred.
(ii) Furnishing services. Services ren-
dered to a QOF are not considered the
making of a section 1400Z-2(a)(1)(A) in-

May 20, 2019 1218 Bulletin No. 2019–21
vestment. Thus, if a taxpayer receives an
eligible interest in a QOF for services ren-
dered to the QOF or to a person in which
the QOF holds any direct or indirect eq-
uity interest, then the interest in the QOF
that the taxpayer receives is not a section
1400Z-2(a)(1)(A) investment but is an in-
vestment to which section 1400Z-2(e)(1)
(A)(ii) applies.
(iii) Acquisition of eligible interest from
person other than QOF. A taxpayer may
make a section 1400Z-2(a)(1)(A) invest-
ment by acquiring an eligible interest in
a QOF from a person other than the QOF.
(10) Amount invested for purposes of
section 1400Z-2(a)(1)(A). In the case of
any investments described in this para-
graph (b)(10), the amount of a taxpayer’s
section 1400Z-2(a)(1)(A) investment can-
not exceed the amount of gain to be de-
ferred under the election. If the amount of
the taxpayer’s investment as determined
under this paragraph (b)(10) exceeds the
amount of gain to be deferred under the
section 1400Z-2(a) election, the amount
of the excess is treated as an investment
to which section 1400Z-2(e)(1)(A)(ii) ap-
plies. See paragraph (b)(10)(ii) of this sec-
tion for special rules applicable to trans-
fers to QOF partnerships.
(i) Transfers to a QOF—(A) Cash. If
a taxpayer makes a section 1400Z-2(a)(1)
(A) investment by transferring cash to a
QOF, the amount of the taxpayer’s sec-
tion 1400Z-2(a)(1)(A) investment is that
amount of cash.
(B) Property other than cash—Nonrec-
ognition transactions. This paragraph (b)
(10)(i)(B) applies if a taxpayer makes a
section 1400Z-2(a)(1)(A) investment by
transferring property other than cash to a
QOF and if, but for the application of sec-
tion 1400Z-2(b)(2)(B), the taxpayer’s ba-
sis in the resulting investment in the QOF
would be determined, in whole or in part,
by reference to the taxpayer’s basis in the
transferred property.
(1) Amount of section 1400Z-2(a)(1)
(A) investment. If paragraph (b)(10)(i)
(B) of this section applies, the amount of
the taxpayer’s section 1400Z-2(a)(1)(A)
investment is the lesser of the taxpayer’s
adjusted basis in the eligible interest re-
ceived in the transaction, without regard
to section 1400Z-2(b)(2)(B), or the fair
market value of the eligible interest re-
ceived in the transaction, both as deter-
mined immediately after the contribution.
Paragraph (b)(10)(i)(B) of this section ap-
plies separately to each item of property
contributed to a QOF.
(2) Fair market value of the eligible
interest received exceeds its adjusted
basis. If paragraph (b)(10)(i)(B) of this
section applies, and if the fair market
value of the eligible interest received
is in excess of the taxpayer’s adjusted
basis in the eligible interest received,
without regard to section 1400Z-2(b)(2)
(B), then the taxpayer’s investment is an
investment with mixed funds to which
section 1400Z-2(e)(1) applies. Para-
graph (b)(10)(i)(B)(1) of this section
determines the amount of the taxpayer’s
investment to which section 1400Z-2(e)
(1)(A)(i) applies. Section 1400Z-2(e)(1)
(A)(ii) applies to the excess of the fair
market value of the investment to which
section 1400Z-2(e)(1)(A)(i) applies over
the taxpayer’s adjusted basis therein,
determined without regard to section
1400Z-2(b)(2)(B).
(3) Transfer of built-in loss property
and section 362(e)(2). If paragraph (b)(10)
(i)(B) of this section and section 362(e)(2)
both apply to a transaction, the taxpayer
is deemed to have made an election under
section 362(e)(2)(C).
(C) Property other than cash—Tax-
able transactions. This paragraph (b)
(10)(i)(C) applies if a taxpayer makes a
section 1400Z-2(a)(1)(A) investment by
transferring property other than cash to
a QOF and if, without regard to section
1400Z-2(b)(2)(B), the taxpayer’s basis in
the eligible interest received would not be
determined, in whole or in part, by refer-
ence to the taxpayer’s basis in the trans-
ferred property. If this paragraph (b)(10)
(i)(C) applies, the amount of the taxpay-
er’s section 1400Z-2(a)(1)(A) investment
is the fair market value of the transferred
property, as determined immediately be-
fore the transfer. This paragraph (b)(10)
(i)(C) applies separately to each item of
property transferred to a QOF.
(D) Basis in an investment with mixed
funds. If a taxpayer’s investment in a
QOF is an investment with mixed funds
to which section 1400Z-2(e)(1) applies,
the taxpayer’s basis in the investment to
which section 1400Z-2(e)(1)(A)(ii) ap-
plies is equal to the taxpayer’s basis in all
of the QOF interests received, determined
without regard to section 1400Z-2(b)
(2)(B), and reduced by the basis of the
taxpayer’s investment to which section
1400Z-2(e)(1)(A)(i) applies, determined
without regard to section 1400Z-2(b)(2)
(B).
(ii) Special rules for transfers to QOF
partnerships. In the case of an investment
in a QOF partnership, the following rules
apply:
(A) Amounts not treated as an invest-
ment—(1) Non-contributions in general.
To the extent the transfer of property to
a QOF partnership is characterized other
than as a contribution (for example, as
a sale for purposes of section 707), the
transfer is not a section 1400Z-2(a)(1)(A)
investment.
(2) Reductions in investments other-
wise treated as contributions. To the ex-
tent any transfer of cash or other property
to a partnership is not disregarded under
paragraph (b)(10)(ii)(A)(1) of this section
(for example, it is not treated as a disguised
sale of the property transferred to the part-
nership under section 707), the transfer
to the partnership will not be treated as a
section 1400Z-2(a)(1)(A) investment to
the extent the partnership makes a distri-
bution to the partner and the transfer to the
partnership and the distribution would be
recharacterized as a disguised sale under
section 707 if:
(i) Any cash contributed were non-cash
property; and
(ii) In the case of a distribution by the
partnership to which §1.707-5(b) (relating
to debt-financed distributions) applies, the
partner’s share of liabilities is zero.
(B) Amount invested in a QOF partner-
ship—(1) Calculation of amount of qual-
ifying and non-qualifying investments.
To the extent paragraph (b)(10)(ii)(A) of
this section does not apply, the amount of
the taxpayer’s qualifying investment in a
QOF partnership is the lesser of the tax-
payer’s net basis in the property contribut-
ed to the QOF partnership, or the net value
of the property contributed by the taxpay-
er to the QOF partnership. The amount of
the taxpayer’s non-qualifying investment
in the partnership is the excess, if any, of
the net value of the contribution over the
amount treated as a qualifying investment.
(2) Net basis. For purposes of para-
graph (b)(10)(ii)(B) of this section, net
basis is the excess, if any, of –

Bulletin No. 2019–21 1219 May 20, 2019
(i) The adjusted basis of the property
contributed to the partnership; over
(ii) The amount of any debt to which
the property is subject or that is assumed
by the partnership in the transaction.
(3) Net value. For purposes of para-
graph (b)(10)(ii)(B) of this section, net
value is the excess of –
(i) The gross fair market value of the
property contributed; over
(ii) The amount of the debt described
in paragraph (b)(10)(ii)(B)(2)(ii) of this
section.
(4) Basis of qualifying and non-qualify-
ing investments. The basis of a qualifying
investment is the net basis of the property
contributed, determined without regard to
section 1400Z-2(b)(2)(B) or any share of
debt under section 752(a). The basis of a
non-qualifying investment (before any
section 752 debt allocation) is the remain-
ing net basis. The bases of qualifying and
non-qualifying investments are increased
by any debt allocated to such investments
under the rules of §1.1400Z2(b)-1(c)(6)
(iv)(B).
(5) Rules applicable to mixed-funds in-
vestments. If one portion of an investment
in a QOF partnership is a qualifying invest-
ment and another portion is a non-qualify-
ing investment, see §1.1400Z2(b)-1(c)(6)
(iv) for the rules that apply.
(iii) Acquisitions from another person.
If a taxpayer makes a section 1400Z-2(a)
(1)(A) investment by acquiring an eligible
interest in a QOF from a person other than
the QOF, then the amount of the taxpay-
er’s section 1400Z-2(a)(1)(A) investment
is the amount of the cash, or the fair mar-
ket value of the other property, as deter-
mined immediately before the exchange,
that the taxpayer exchanged for the eligi-
ble interest in the QOF.
(iv) Examples. The following examples
illustrate the rules of paragraph (b)(10) of
this section. For purposes of the following
examples, B is an individual and Q is a
QOF corporation.
(A) Example 1: Transfer of built-in gain prop-
erty with basis less than gain to be deferred. B re-
alizes $100 of eligible gain within the meaning of
paragraph (b)(2) of this section. B transfers unen-
cumbered property with a fair market value of $100
and an adjusted basis of $60 to Q in a transaction
that is described in section 351(a). Paragraph (b)(10)
(i)(B) of this section applies because B transferred
property other than cash to Q and, but for the appli-
cation of section 1400Z-2(b)(2)(B), B’s basis in the
eligible interests in Q would be determined, in whole
or in part, by reference to B’s basis in the transferred
property. The fair market value of the eligible inter-
est B received is $100, and, without regard to section
1400Z-2(b)(2)(B), B’s basis in the eligible interest
received would be $60. Thus, pursuant to paragraph
(b)(10)(i)(B)(2) of this section, B’s investment is
an investment with mixed funds to which section
1400Z-2(e)(1) applies. Pursuant to paragraphs (b)
(10)(i)(B)(1) and (2) of this section, B’s section
1400Z-2(a)(1)(A) investment is $60 (the lesser of
the taxpayer’s adjusted basis in the eligible interest,
without regard to section 1400Z-2(b)(2)(B), of $60
and the $100 fair market value of the eligible inter-
est received). Pursuant to section 1400Z-2(b)(2)(B)
(i), B’s basis in the section 1400Z-2(a)(1)(A) invest-
ment is $0. Additionally, B’s other investment is $40
(the excess of the fair market value of the eligible
interest received ($100) over the taxpayer’s adjusted
basis in the eligible interest, without regard to sec-
tion 1400Z-2(b)(2)(B) ($60)). B’s basis in the oth-
er investment is $0 (B’s $60 basis in its investment
determined without regard to section 1400Z-2(b)(2)
(B), reduced by the $60 of adjusted basis allocated
to the investment to which section1400Z-2(e)(1)
(A)(i) applies, determined without regard to section
1400Z-2(b)(2)(B)). See paragraph (b)(10)(i)(D) of
this section. Pursuant to section 362, Q’s basis in the
transferred property is $60.
(B) Example 2: Transfer of built-in gain property
with basis in excess of eligible gain to be deferred.
The facts are the same as Example 1 in paragraph
(b)(10)(iv)(A) of this section, except that B realizes
$50 of eligible gain within the meaning of paragraph
(b)(2) of this section. Pursuant to paragraph (b)(10)
of this section, B’s section 1400Z-2(a)(1)(A) invest-
ment cannot exceed the amount of eligible gain to be
deferred (that is, the $50 of eligible gain) under the
section 1400Z-2(a) election. Therefore, pursuant to
paragraph (b)(10)(i)(B)(1) of this section, B’s section
1400Z-2(a)(1)(A) investment is $50 (the lesser of the
taxpayer’s adjusted basis in the eligible interest re-
ceived, without regard to section 1400Z-2(b)(2)(B),
of $60 and the $100 fair market value of the eligible
interest, limited by the amount of eligible gain to be
deferred under the section 1400Z-2(a) election). B’s
section 1400Z-2(a)(1)(A) investment has an adjust-
ed basis of $0, as provided in section 1400Z-2(b)(2)
(B)(i). Additionally, B’s other investment is $50 (the
excess of the fair market value of the eligible interest
received ($100) over the amount ($50) of B’s section
1400Z-2(a)(1)(A) investment). B’s basis in the other
investment is $10 (B’s $60 basis in its investment
determined without regard to section 1400Z-2(b)(2)
(B),), reduced by the $50 of adjusted basis allocated
to B’s section 1400Z-2(a)(1)(A) investment, deter-
mined without regard to section 1400Z-2(b)(2)(B)).
(C) Example 3: Transfers to QOF partnerships—
(1) Facts. A and B each realized $100 of eligible gain
and each transfers $100 of cash to a QOF partner-
ship. At a later date, the partnership borrows $120
from an unrelated lender and distributes the cash of
$120 equally to A and B.
(2) Analysis. If the contributions had
been of property other than cash, the con-
tributions and distributions would have
been tested under the disguised sale rules
of §1.707-5(b) by, among other things,
determining the timing of the distribution
and amount of the debt allocated to each
partner. Under paragraph (b)(10)(ii)(A)
(2) of this section, the cash of $200 ($100
from A and $100 from B) is treated as
property that could be sold in a disguised
sale transaction and each partner’s share of
the debt is zero for purposes of determin-
ing the amount of the investment. To the
extent there would have been a disguised
sale applying the rule of paragraph (b)(10)
(ii)(A)(2) of this section, the amount of
the investment would be reduced by the
amount of the contribution so recharacter-
ized.
(3) Property contributed has built-
in gain. The facts are the same as in this
Example 3 in paragraph (b)(10)(iv)(C)
(1) of this section, except that the prop-
erty contributed by A had a value of $100
and basis of $20 and the partnership did
not borrow money or make a distribution.
Under paragraph (b)(10)(ii)(B)(1) of this
section, the amount of A’s qualifying in-
vestment is $20 (the lesser of the net val-
ue or the net basis of the property that A
contributed), and the excess of the $100
contribution over the $20 qualifying in-
vestment constitutes a non-qualifying in-
vestment. Under paragraph (b)(10)(ii)(B)
(2) of this section, A’s basis in the qual-
ifying investment (determined without
regard to section 1400Z-2(b)(2)(B) or sec-
tion 752(a)) is $20. After the application
of section 1400Z-2(b)(2)(B) but before
the application of section 752(a), A’s basis
in the qualifying investment is zero. A’s
basis in the non-qualifying investment is
zero without regard to the application of
section 752(a).
(4) Property contributed has built-in
gain and is subject to debt. The facts are
the same as in this Example 3 in para-
graph (b)(10)(iv)(C)(3) of this section,
except that the property contributed by A
has a gross value of $130 and is subject to
debt of $30. Under paragraph (b)(10)(ii)
(B)(1) of this section, the amount of A’s
qualifying investment is zero, the lesser of
the property’s $100 net value ($130 minus
$30) or zero net basis ($20 minus $30, but
limited to zero). The entire contribution
constitutes a non-qualifying investment.
(5) Property contributed has built-in
loss and is subject to debt. The facts are
the same as in this Example 3 in paragraph
(b)(10)(iv)(C)(4) of this section, except

May 20, 2019 1220 Bulletin No. 2019–21
that the property contributed by A has a
basis of $150. Under paragraph (b)(10)(ii)
(B)(1) of this section, the amount of A’s
qualifying investment is $100, the lesser
of the property’s $100 net value ($130 mi-
nus $30) or $120 net basis ($150 minus
$30). The non-qualifying investment is
$0, the excess of the qualifying investment
($100) over the net value ($100). A’s basis
in the qualifying investment (determined
without regard to section 1400Z-2(b)(2)
(B) and section 752(a)) is $120, the net
basis. After the application of section
1400Z-2(b)(2)(B), A’s basis in the quali-
fying investment is zero, plus its share of
partnership debt under section 752(a).
* * * * *
Par. 3. Section 1.1400Z2(b)-1 is added to
read as follows:
§1.1400Z2(b)-1 Inclusion of gains
that have been deferred under section
1400Z-2(a).
(a) Scope and definitions—(1) Scope.
This section provides rules under sec-
tion 1400Z-2(b) of the Internal Revenue
Code regarding the inclusion in income of
gain deferred under section 1400Z-2(a)(1)
(A). This section applies to a QOF own-
er only until all of such owner’s gain de-
ferred pursuant to section 1400Z-2(a)(1)
(A) has been included in income, subject
to the limitations described in paragraph
(e)(5) of this section. Paragraph (a)(2) of
this section provides additional definitions
used in this section and §§1.1400Z2(c)-1
through 1.1400Z2(g)-1. Paragraph (b) of
this section provides general rules under
section 1400Z-2(b)(1) regarding the tim-
ing of the inclusion in income of the de-
ferred gain. Paragraph (c) of this section
provides rules regarding the determination
of the extent to which an event triggers the
inclusion in income of all, or a portion, of
the deferred gain. Paragraph (d) of this
section provides rules regarding hold-
ing periods for qualifying investments.
Paragraph (e) of this section provides
rules regarding the amount of deferred
gain included in gross income under sec-
tion 1400Z-2(a)(1)(B) and (b), including
special rules for QOF partnerships and
QOF S corporations. Paragraph (f) of this
section provides examples illustrating the
rules of paragraphs (c), (d), and (e) of this
section. Paragraph (g) of this section pro-
vides rules regarding basis adjustments
under section 1400Z-2(b)(2)(B). Para-
graph (h) of this section provides special
reporting rules applicable to partners,
partnerships, and direct or indirect owners
of QOF partnerships. Paragraph (i) of this
section provides dates of applicability.
(2) Definitions. The following defini-
tions apply for purposes of this section
and §§1.1400Z2(c)-1 and 1.1400Z2(g)-1:
(i) Boot. The term boot means money
or other property that section 354 or 355
does not permit to be received without the
recognition of gain.
(ii) Consolidated group. The term con-
solidated group has the meaning provided
in §1.1502-1(h).
(iii) Deferral election. The term defer-
ral election means an election under sec-
tion 1400Z-2(a) made before January 1,
2027, with respect to an eligible interest.
(iv) Inclusion event. The term inclusion
event means an event described in para-
graph (c) of this section.
(v) Mixed-funds investment. The term
mixed-funds investment means an invest-
ment a portion of which is a qualifying
investment and a portion of which is a
non-qualifying investment.
(vi) Non-qualifying investment. The
term non-qualifying investment means an
investment in a QOF described in section
1400Z-2(e)(1)(A)(ii).
(vii) Property—(A) In general. The
term property means money, securities, or
any other property.
(B) Inclusion events regarding QOF
corporation distributions. For purposes of
paragraph (c) of this section, in the con-
text in which a QOF corporation makes
a distribution, the term property does not
include stock (or rights to acquire stock)
in the QOF corporation that makes the dis-
tribution.
(viii) QOF. The term QOF means a
qualified opportunity fund, as defined in
section 1400Z-2(d)(1) and associated reg-
ulations.
(ix) QOF C corporation. The term
QOF C corporation means a QOF corpo-
ration other than a QOF S corporation.
(x) QOF corporation. The term QOF
corporation means a QOF that is classi-
fied as a corporation for Federal income
tax purposes.
(xi) QOF owner. The term QOF owner
means a QOF shareholder or a QOF part-
ner.
(xii) QOF partner. The term QOF
partner means a person that directly owns
a qualifying investment in a QOF partner-
ship or a person that owns such a quali-
fying investment through equity interests
solely in one or more partnerships.
(xiii) QOF partnership. The term QOF
partnership means a QOF that is classi-
fied as a partnership for Federal income
tax purposes.
(xiv) QOF S corporation. The term
QOF S corporation means a QOF corpo-
ration that has elected under section 1362
to be an S corporation.
(xv) QOF shareholder. The term QOF
shareholder means a person that directly
owns a qualifying investment in a QOF
corporation.
(xvi) Qualifying investment. The term
qualifying investment means an eligible
interest (as defined in §1.1400Z2(a)-1(b)
(3)), or portion thereof, in a QOF to the
extent that a deferral election applies with
respect to such eligible interest or portion
thereof.
(xvii) Qualifying QOF partnership
interest. The term qualifying QOF part-
nership interest means a direct or indirect
interest in a QOF partnership that is a
qualifying investment.
(xviii) Qualifying QOF stock. The term
qualifying QOF stock means stock in a
QOF corporation that is a qualifying in-
vestment.
(xix) Qualifying section 355 trans-
action. The term qualifying section 355
transaction means a distribution described
in paragraph (c)(11)(i)(B) of this section.
(xx) Qualifying section 381 trans-
action. The term qualifying section 381
transaction means a transaction described
in section 381(a)(2), except the following
transactions:
(A) An acquisition of assets of a QOF
by a QOF shareholder that holds a quali-
fying investment in the QOF;
(B) An acquisition of assets of a QOF
by a tax-exempt entity as defined in
§1.337(d)-4(c)(2);
(C) An acquisition of assets of a QOF
by an entity operating on a cooperative
basis within the meaning of section 1381;

Bulletin No. 2019–21 1221 May 20, 2019
(D) An acquisition by a QOF of assets
of a QOF shareholder that holds a qualify-
ing investment in the QOF;
(E) A reorganization of a QOF in a
transaction that qualifies under section
368(a)(1)(G);
(F) A transaction, immediately after
which one QOF owns an investment in
another QOF; and
(G) A triangular reorganization of a
QOF within the meaning of §1.358-6(b)
(2)(i), (ii), or (iii).
(xxi) Remaining deferred gain. The
term remaining deferred gain means the
full amount of gain that was deferred un-
der section 1400Z-2(a)(1)(A), reduced by
the amount of gain previously included
under paragraph (b) of this section.
(b) General inclusion rule. The gain to
which a deferral election applies is includ-
ed in gross income, to the extent provided
in paragraph (e) of this section, in the tax-
able year that includes the earlier of:
(1) The date of an inclusion event; or
(2) December 31, 2026.
(c) Inclusion events—(1) General rule.
Except as otherwise provided in this para-
graph (c), the following events are inclu-
sion events (which result in the inclusion
of gain under paragraph (b) of this sec-
tion) if, and to the extent that—
(i) Reduction of interest in QOF. A tax-
payer’s transfer of a qualifying investment
reduces the taxpayer’s equity interest in
the qualifying investment;
(ii) Distribution of property regardless
of whether the taxpayer’s direct interest in
the QOF is reduced. A taxpayer receives
property in a transaction that is treated as
a distribution for Federal income tax pur-
poses, whether or not the receipt reduces
the taxpayer’s ownership of the QOF; or
(iii) Claim of worthlessness. A taxpay-
er claims a loss for worthless stock un-
der section 165(g) or otherwise claims a
worthlessness deduction with respect to
its qualifying investment.
(2) Termination or liquidation of QOF
or QOF owner—(i) Termination or liqui-
dation of QOF. Except as otherwise pro-
vided in this paragraph (c), a taxpayer has
an inclusion event with respect to all of its
qualifying investment if the QOF ceases
to exist for Federal income tax purposes.
(ii) Liquidation of QOF owner—(A)
Portion of distribution treated as sale. A
distribution of a qualifying investment
in a complete liquidation of a QOF own-
er is an inclusion event to the extent that
section 336(a) treats the distribution as if
the qualifying investment were sold to the
distributee at its fair market value, without
regard to section 336(d).
(B) Distribution to 80-percent distrib-
utee. A distribution of a qualifying invest-
ment in a complete liquidation of a QOF
owner is not an inclusion event to the ex-
tent section 337(a) applies to the distribu-
tion.
(3) Transfer of an investment in a QOF
by gift. A taxpayer’s transfer of a qualify-
ing investment by gift, whether outright or
in trust, is an inclusion event, regardless
of whether that transfer is a completed gift
for Federal gift tax purposes, and regard-
less of the taxable or tax-exempt status of
the donee of the gift.
(4) Transfer of an investment in a QOF
by reason of the taxpayer’s death—(i) In
general. Except as provided in paragraph
(c)(4)(ii) of this section, a transfer of a
qualifying investment by reason of the
taxpayer’s death is not an inclusion event.
Transfers by reason of death include, for
example:
(A) A transfer by reason of death to the
deceased owner’s estate;
(B) A distribution of a qualifying in-
vestment by the deceased owner’s estate;
(C) A distribution of a qualifying in-
vestment by the deceased owner’s trust
that is made by reason of the deceased
owner’s death;
(D) The passing of a jointly owned
qualifying investment to the surviving
co-owner by operation of law; and
(E) Any other transfer of a qualifying
investment at death by operation of law.
(ii) Exceptions. The following transfers
are not included as a transfer by reason of
the taxpayer’s death, and thus are inclu-
sion events, and the amount recognized is
includible in the gross income of the trans-
feror as provided in section 691:
(A) A sale, exchange, or other disposi-
tion by the deceased taxpayer’s estate or
trust, other than a distribution described in
paragraph (c)(4)(i) of this section;
(B) Any disposition by the legatee,
heir, or beneficiary who received the qual-
ifying investment by reason of the taxpay-
er’s death; and
(C) Any disposition by the surviving
joint owner or other recipient who re-
ceived the qualifying investment by oper-
ation of law on the taxpayer’s death.
(5) Grantor trusts—(i) Contributions
to grantor trusts. If the owner of a qualify-
ing investment contributes it to a trust and,
under the grantor trust rules, the owner of
the investment is the deemed owner of the
trust, the contribution is not an inclusion
event.
(ii) Changes in grantor trust status. In
general, a change in the status of a grantor
trust, whether the termination of grantor
trust status or the creation of grantor trust
status, is an inclusion event. Notwith-
standing the previous sentence, the termi-
nation of grantor trust status as the result
of the death of the owner of a qualifying
investment is not an inclusion event, but
the provisions of paragraph (c)(4) of this
section apply to distributions or disposi-
tions by the trust.
(6) Special rules for partners and part-
nerships—(i) Scope. Except as otherwise
provided in this paragraph (c)(6), in the
case of a partnership that is a QOF or, di-
rectly or indirectly solely through one or
more partnerships, owns an interest in a
QOF, the inclusion rules of this paragraph
(c) apply to transactions involving any di-
rect or indirect partner of the QOF to the
extent of such partner’s share of any eligi-
ble gain of the QOF.
(ii) Transactions that are not inclusion
events—(A) In general. Notwithstanding
paragraphs (c)(1) and (2) and (c)(6)(iii) of
this section, and except as otherwise pro-
vided in paragraph (c)(6) of this section,
no transaction described in paragraph (c)
(6)(ii) of this section is an inclusion event.
(B) Section 721 contributions. Subject
to paragraph (c)(6)(v) of this section, a
contribution by a QOF owner, including
any contribution by a partner of a partner-
ship that, solely through one or more up-
per-tier partnerships, owns an interest in a
QOF (contributing partner), of its direct or
indirect partnership interest in a qualify-
ing investment to a partnership (transferee
partnership) in a transaction governed all
or in part by section 721(a) is not an inclu-
sion event, provided the interest transfer
does not cause a partnership termination
of a QOF partnership, or the direct or indi-
rect owner of a QOF, under section 708(b)
(1). See paragraph (c)(6)(ii)(C) of this sec-
tion for transactions governed by section
708(b)(2)(A). Notwithstanding the rules

May 20, 2019 1222 Bulletin No. 2019–21
in this paragraph (c)(6)(ii)(B), the inclu-
sion rules in paragraph (c) of this section
apply to any part of the transaction to
which section 721(a) does not apply. The
transferee partnership becomes subject to
section 1400Z-2 and all section 1400Z-2
regulations in this chapter with respect
to the eligible gain associated with the
contributed qualifying investment. The
transferee partnership must allocate and
report the gain that is associated with the
contributed qualifying investment to the
contributing partner to the same extent
that the gain would have been allocated
and reported to the contributing partner in
the absence of the contribution.
(C) Section 708(b)(2)(A) mergers or
consolidations. Subject to paragraph (c)
(6)(v) of this section, a merger or consol-
idation of a partnership holding a qual-
ifying investment, or of a partnership
that holds an interest in such partnership
solely through one or more partnerships,
with another partnership in a transaction
to which section 708(b)(2)(A) applies is
not an inclusion event. The resulting part-
nership or new partnership, as determined
under §1.708-1(c)(1), becomes subject to
section 1400Z-2, and all section 1400Z-
2 regulations in this chapter, to the same
extent that the original partnership was so
subject prior to the transaction, and must
allocate and report any eligible gain to the
same extent and to the same partners that
the original partnership allocated and re-
ported such items prior to the transaction.
Notwithstanding the rules in this para-
graph (c)(6)(ii)(C), the general inclusion
rules of paragraph (c) of this section apply
to the portion of the transaction that is oth-
erwise treated as a sale or exchange under
paragraph (c) of this section.
(iii) Partnership distributions. Not-
withstanding paragraph (c)(6)(i) of this
section, and subject to paragraph (c)(6)(v)
of this section, and except as provided in
paragraph (c)(6)(ii)(C) of this section, an
actual or deemed distribution of property
(including cash) by a QOF partnership to
a partner with respect to its qualifying in-
vestment is an inclusion event only to the
extent that the distributed property has a
fair market value in excess of the partner’s
basis in its qualifying investment. Simi-
lar rules apply to distributions involving
tiered partnerships. See paragraph (c)(6)
(iv) of this section for special rules relat-
ing to mixed-funds investments.
(iv) Special rules for mixed-funds in-
vestments—(A) General rule. The rules of
paragraph (c)(6)(iv) of this section apply
solely for purposes of section 1400Z-2. A
partner that holds a mixed-funds invest-
ment in a QOF partnership (a mixed-funds
partner) shall be treated as holding two
separate interests in the QOF partnership,
one a qualifying investment and the other
a non-qualifying investment (the separate
interests). The basis of each separate inter-
est is determined under the rules described
in paragraphs (c)(6)(iv)(B) and (g) of this
section as if each interest were held by dif-
ferent taxpayers.
(B) Allocations and distributions. All
section 704(b) allocations of income, gain,
loss, and deduction, all section 752 alloca-
tions of debt, and all distributions made to
a mixed-funds partner shall be treated as
made to the separate interests based on the
allocation percentages of such interests as
defined in paragraph (c)(6)(iv)(D) of this
section. For purposes of this paragraph (c)
(6)(iv)(B), in allocating income, gain, loss,
or deduction between these separate inter-
ests, section 704(c) principles shall apply
to account for any value-basis disparities
attributable to the qualifying investment
or non-qualifying investment. Any distri-
bution (whether actual or deemed) to the
holder of a qualifying investment is sub-
ject to the rules of paragraphs (c)(6)(iii)
and (v) of this section, without regard to
the presence or absence of gain under oth-
er provisions of subchapter K of chapter 1
of subtitle A of the Code.
(C) Subsequent contributions. In the
event of an increase in a partner’s qual-
ifying or non-qualifying investment (for
example, as in the case of an additional
contribution for a qualifying investment
or for an interest that is a non-qualifying
investment or a change in allocations for
services rendered), the partner’s interest
in the separate interests shall be valued
immediately prior to such event and the
allocation percentages shall be adjusted to
reflect the relative values of these separate
interests and the additional contribution,
if any.
(D) Allocation percentages. The allo-
cation percentages of the separate interests
shall be determined based on the relative
capital contributions attributable to the
qualifying investment and the non-quali-
fying investment. In the event a partner re-
ceives a profits interest in the partnership
for services rendered to or for the benefit
of the partnership, the allocation percent-
ages with respect to such partner shall be
calculated based on:
(1) With respect to the profits interest
received, the highest share of residual
profits the mixed-funds partner would re-
ceive with respect to that interest; and
(2) With respect to the remaining inter-
est, the percentage interests for the capital
interests described in the immediately pre-
ceding sentence.
(v) Remaining deferred gain reduction
rule. An inclusion event occurs when and
to the extent that a transaction has the ef-
fect of reducing –
(A) The amount of remaining deferred
gain of one or more direct or indirect part-
ners; or
(B) The amount of gain that would be
recognized by such partner or partners un-
der paragraph (e)(4)(ii) of this section to
the extent that such amount would reduce
such gain to an amount that is less than the
remaining deferred gain.
(7) Special rule for S corporations—(i)
In general. Except as provided in para-
graphs (c)(7)(ii), (iii), and (iv) of this sec-
tion, none of the following is an inclusion
event:
(A) An election, revocation, or ter-
mination of a corporation’s status as an
S corporation under section 1362;
(B) A conversion of a qualified sub-
chapter S trust (as defined in section
1361(d)(3)) to an electing small business
trust (as defined in section 1361(e)(1));
(C) A conversion of an electing small
business trust to a qualified subchapter S
trust;
(D) A valid modification of a trust
agreement of an S-corporation sharehold-
er whether by an amendment, a decanting,
a judicial reformation, or a material mod-
ification;
(E) A 25 percent or less aggregate
change in ownership pursuant to para-
graph (c)(7)(iii) of this section in the equi-
ty investment in an S corporation that di-
rectly holds a qualifying investment; and
(F) A disposition of assets by a
QOF S corporation.
(ii) Distributions by QOF S corpo-
ration—(A) General rule. An actual or

Bulletin No. 2019–21 1223 May 20, 2019
constructive distribution of property by a
QOF S corporation to a shareholder with
respect to its qualifying investment is an
inclusion event to the extent that the dis-
tribution is treated as gain from the sale
or exchange of property under section
1368(b)(2) and (c).
(B) Spill-over rule. For purposes of
applying paragraph (c)(7)(ii) of this sec-
tion to the adjusted basis of a qualifying
investment, or non-qualifying investment,
as appropriate, in a QOF S corporation,
the second sentence of §1.1367-1(c)(3)
applies—
(1) With regard to multiple qualifying
investments, solely to the respective bas-
es of such qualifying investments, and
does not take into account the basis of any
non-qualifying investment; and
(2) With regard to multiple non-quali-
fying investments, solely to the respective
bases of such non-qualifying investments,
and does not take into account the basis of
any qualifying investment.
(iii) Aggregate change in ownership
of an S corporation that is a QOF own-
er—(A) General rule. Solely for purpos-
es of section 1400Z-2, an inclusion event
occurs when there is an aggregate change
in ownership, within the meaning of para-
graph (c)(7)(iii)(B) of this section, of an
S corporation that directly holds a quali-
fying investment in a QOF. The S corpo-
ration is treated as having disposed of its
entire qualifying investment in the QOF,
and neither section 1400Z-2(b)(2)(B)(iii)
or (iv) nor section 1400Z-2(c) applies to
the S corporation’s qualifying investment
after that date. The disposition under this
paragraph (c)(7)(iii)(A) is treated as oc-
curring on the date the requirements of
paragraph (c)(7)(iii)(B) of this section are
satisfied.
(B) Aggregate ownership change
threshold. For purposes of paragraph (c)
(7)(iii)(A) of this section, there is an ag-
gregate change in ownership of an S cor-
poration if, immediately after any change
in ownership of the S corporation, the
percentage of the stock of the S corpora-
tion owned directly by the shareholders
who owned the S corporation at the time
of its deferral election has decreased by
more than 25 percent. The ownership per-
centage of each shareholder referred to in
this paragraph (c)(7)(iii)(B) is measured
separately from the ownership percentage
of all other shareholders. Any decrease in
ownership is determined with regard to
the percentage held by the relevant share-
holder at the time of the election under
section 1400Z-2(a), and all decreases are
then aggregated. Decreases in ownership
may result from, for example, the sale of
shares, the redemption of shares, the issu-
ance of new shares, or the occurrence of
section 381(a) transactions. The aggregate
change in ownership is measured sepa-
rately for each qualifying investment of
the S corporation.
(iv) Conversion from S corporation
to partnership or disregarded entity—
(A) General rule. Notwithstanding para-
graph (c)(7)(i) of this section, and except
as provided in paragraph (c)(7)(iv)(B) of
this section, a conversion of an S corpo-
ration to a partnership or an entity disre-
garded as separate from its owner under
§301.7701-3(b)(1)(ii) of this chapter is an
inclusion event.
(B) Exception for qualifying section
381 transaction. A conversion described
in paragraph (c)(7)(iv)(A) of this section
is not an inclusion event if the conver-
sion comprises a step in a series of relat-
ed transactions that together qualify as a
qualifying section 381 transaction.
(v) Treatment of separate blocks of
stock in mixed-funds investments. With
regard to a mixed-funds investment in a
QOF S corporation, if different blocks of
stock are created for otherwise qualifying
investments to track basis in such quali-
fying investments, the separate blocks are
not treated as different classes of stock for
purposes of S corporation eligibility under
section 1361(b)(1).
(vi) Applicability. Paragraph (c)(7) of
this section applies regardless of wheth-
er the S corporation is a QOF or a QOF
shareholder.
(8) Distributions by a QOF C cor-
poration. A distribution of property by
a QOF C corporation with respect to a
qualifying investment is not an inclusion
event except to the extent section 301(c)
(3) applies to the distribution. For purpos-
es of this paragraph (c)(8), a distribution
of property also includes a distribution of
stock by a QOF C corporation that is treat-
ed as a distribution of property to which
section 301 applies pursuant to section
305(b).
(9) Dividend-equivalent redemptions—
(i) General rule. Except as provided in
paragraph (c)(9)(ii) or (iii) of this section,
a transaction described in section 302(d)
is an inclusion event with respect to the
full amount of the distribution.
(ii) Redemption of stock of wholly
owned QOF. If all stock in a QOF is held
directly by a single shareholder, or direct-
ly by members of the same consolidated
group, and if shares are redeemed in a
transaction to which section 302(d) ap-
plies, see paragraph (c)(8) of this section
(applicable to distributions by QOF cor-
porations).
(iii) S corporations. S corporation sec-
tion 302(d) transactions are an inclusion
event to the extent the distribution ex-
ceeds basis in the QOF as adjusted under
paragraph (c)(7)(ii) of this section.
(10) Qualifying section 381 transac-
tions—(i) Assets of a QOF are acquired—
(A) In general. Except to the extent pro-
vided in paragraph (c)(10)(i)(C) of this
section, if the assets of a QOF corpora-
tion are acquired in a qualifying section
381 transaction, and if the acquiring cor-
poration is a QOF immediately after the
acquisition, then the transaction is not an
inclusion event.
(B) Determination of acquiring corpo-
ration’s status as a QOF. For purposes of
paragraph (c)(10)(i)(A) of this section, the
acquiring corporation is treated as a QOF
immediately after the qualifying section
381 transaction if the acquiring corpora-
tion satisfies the certification requirements
in §1.1400Z2(d)-1 immediately after the
transaction and holds at least 90 percent
of its assets in qualified opportunity zone
property on the first testing date after the
transaction (see section 1400Z-2(d)(1)
and §1.1400Z2(d)-1).
(C) Receipt of boot by QOF sharehold-
er in qualifying section 381 transaction—
(1) General rule. Except as provided in
paragraph (c)(10)(i)(C)(2) of this section,
if assets of a QOF corporation are acquired
in a qualifying section 381 transaction and
a taxpayer that is a QOF shareholder re-
ceives boot with respect to its qualifying
investment, the taxpayer has an inclusion
event. If the taxpayer realizes a gain on the
transaction, the amount that gives rise to
the inclusion event is the amount of gain
under section 356 that is not treated as a
dividend under section 356(a)(2). If the

May 20, 2019 1224 Bulletin No. 2019–21
taxpayer realizes a loss on the transaction,
the amount that gives rise to the inclusion
event is an amount equal to the fair market
value of the boot received.
(2) Receipt of boot from wholly owned
QOF. If all stock in both a QOF and the
corporation that acquires the QOF’s assets
in a qualifying section 381 transaction
are held directly by a single shareholder,
or directly by members of the same con-
solidated group, and if the shareholder
receives (or group members receive) boot
with respect to the qualifying investment
in the qualifying section 381 transaction,
paragraph (c)(8) of this section (applica-
ble to distributions by QOF corporations)
applies to the boot as if it were distributed
from the QOF to the shareholder(s) in a
separate transaction to which section 301
applied.
(ii) Assets of a QOF shareholder are
acquired—(A) In general. Except to the
extent provided in paragraph (c)(10)(ii)
(B) of this section, a qualifying section
381 transaction in which the assets of a
QOF shareholder are acquired is not an
inclusion event with respect to the qual-
ifying investment. However, if the qual-
ifying section 381 transaction causes a
QOF shareholder that is an S corporation
to have an aggregate change in ownership
within the meaning of paragraph (c)(7)
(iii)(B) of this section, see paragraph (c)
(7)(iii)(A) of this section.
(B) Qualifying section 381 transaction
in which QOF shareholder’s qualifying
investment is not completely acquired. If
the assets of a QOF shareholder are ac-
quired in a qualifying section 381 trans-
action in which the acquiring corporation
does not acquire all of the QOF sharehold-
er’s qualifying investment, there is an in-
clusion event to the extent that the QOF
shareholder’s qualifying investment is not
transferred to the acquiring corporation.
(11) Section 355 transactions—(i)
Distribution by a QOF—(A) In general.
Except as provided in paragraph (c)(11)(i)
(B) of this section, if a QOF corporation
distributes stock or securities of a con-
trolled corporation to a taxpayer in a trans-
action to which section 355, or so much of
section 356 as relates to section 355, ap-
plies, the taxpayer has an inclusion event
with respect to its qualifying investment.
The amount that gives rise to such inclu-
sion event is equal to the fair market value
of the shares of the controlled corporation
and the boot received by the taxpayer in
the distribution with respect to its qualify-
ing investment.
(B) Controlled corporation becomes a
QOF—(1) In general. Except as provid-
ed in paragraph (c)(11)(i)(B)(3) of this
section, if a QOF corporation distributes
stock or securities of a controlled corpo-
ration in a transaction to which section
355, or so much of section 356 as relates
to section 355, applies, and if both the dis-
tributing corporation and the controlled
corporation are QOFs immediately after
the final distribution (qualifying section
355 transaction), then the distribution is
not an inclusion event with respect to the
taxpayer’s qualifying investment in the
distributing QOF corporation or the con-
trolled QOF corporation. This paragraph
(c)(11)(i)(B) does not apply unless the
distributing corporation distributes all of
the stock and securities in the controlled
corporation held by it immediately before
the distribution within a 30-day period.
For purposes of this paragraph (c)(11)(i)
(B), the term final distribution means the
last distribution that satisfies the preced-
ing sentence.
(2) Determination of distributing cor-
poration’s and controlled corporation’s
status as QOFs. For purposes of para-
graph (c)(11)(i)(B)(1) of this section, each
of the distributing corporation and the
controlled corporation is treated as a QOF
immediately after the final distribution if
the corporation satisfies the certification
requirements in §1.1400Z2(d)-1 immedi-
ately after the final distribution and holds
at least 90 percent of its assets in quali-
fied opportunity zone property on the first
testing date after the final distribution (see
section 1400Z-2(d)(1) and §1.1400Z2(d)-
1)).
(3) Receipt of boot. If a taxpayer re-
ceives boot in a qualifying section 355
transaction with respect to its qualifying
investment, and if section 356(a) applies
to the transaction, the taxpayer has an in-
clusion event, and the amount that gives
rise to the inclusion event is the amount of
gain under section 356 that is not treated
as a dividend under section 356(a)(2). If
a taxpayer receives boot in a qualifying
section 355 transaction with respect to
its qualifying investment, and if section
356(b) applies to the transaction, see para-
graph (c)(8) of this section (applicable to
distributions by QOF corporations).
(4) Treatment of controlled corpora-
tion stock as qualified opportunity zone
stock. If stock or securities of a controlled
corporation are distributed in a qualify-
ing section 355 transaction, and if the
distributing corporation retains a portion
of the controlled corporation stock after
the initial distribution, the retained stock
will not cease to qualify as qualified op-
portunity zone stock in the hands of the
distributing corporation solely as a result
of the qualifying section 355 transaction.
This paragraph (c)(11)(i)(B)(4) does not
apply unless the distributing corporation
distributes all of the stock and securities
in the controlled corporation held by it im-
mediately before the distribution within a
30-day period.
(ii) Distribution by a QOF sharehold-
er. If a QOF shareholder distributes stock
or securities of a controlled QOF corpo-
ration in a transaction to which section
355 applies, then for purposes of section
1400Z-2(b)(1) and paragraph (b) of this
section, the taxpayer has an inclusion
event to the extent the distribution reduces
the taxpayer’s direct tax ownership of its
qualifying QOF stock. For distributions
by a QOF shareholder that is an S corpo-
ration, see also paragraph (c)(7)(iii) of this
section.
(12) Recapitalizations and section
1036 transactions—(i) No reduction in
proportionate interest in qualifying QOF
stock—(A) In general. Except as other-
wise provided in paragraph (c)(8) of this
section (relating to distributions subject
to section 305(b)) or paragraph (c)(12)(i)
(B) of this section, if a QOF corporation
engages in a transaction that qualifies as a
reorganization described in section 368(a)
(1)(E), or if a QOF shareholder engages in
a transaction that is described in section
1036, and if the transaction does not have
the result of decreasing the taxpayer’s
proportionate interest in the QOF corpo-
ration, the transaction is not an inclusion
event.
(B) Receipt of property or boot by
QOF shareholder. If the taxpayer receives
property or boot in a transaction described
in paragraph (c)(12)(i)(A) of this section
and section 368(a)(1)(E), then the proper-
ty or boot is treated as property or boot to
which section 301 or section 356 applies,

Bulletin No. 2019–21 1225 May 20, 2019
as determined under general tax princi-
ples. If the taxpayer receives property that
is not permitted to be received without the
recognition of gain in a transaction de-
scribed in paragraph (c)(12)(i)(A) of this
section and section 1036, then, for purpos-
es of this section, the property is treated in
a similar manner as boot in a transaction
described in section 368(a)(1)(E). For the
treatment of property to which section 301
applies, see paragraph (c)(8) of this sec-
tion. For the treatment of boot to which
section 356 applies (including in situa-
tions in which the QOF is wholly and di-
rectly owned by a single shareholder or by
members of the same consolidated group),
see paragraph (c)(10) of this section.
(ii) Reduction in proportionate interest
in the QOF corporation. If a QOF engag-
es in a transaction that qualifies as a reor-
ganization described in section 368(a)(1)
(E), or if a QOF shareholder engages in
a transaction that is described in section
1036, and if the transaction has the result
of decreasing the taxpayer’s proportionate
qualifying interest in the QOF corpora-
tion, then the taxpayer has an inclusion
event in an amount equal to the amount
of the reduction in the fair market value of
the taxpayer’s qualifying QOF stock.
(13) Section 304 transactions. A trans-
fer of a qualifying investment in a trans-
action described in section 304(a) is an
inclusion event with respect to the full
amount of the consideration.
(14) Deduction for worthlessness. If a
taxpayer claims a loss for worthless stock
under section 165(g) or otherwise claims a
worthlessness deduction with respect to all
or a portion of its qualifying investment,
then for purposes of section 1400Z-2 and
all section 1400Z-2 regulations in this
chapter, the taxpayer is treated as having
disposed of that portion of its qualifying
investment on the date it became worth-
less. Thus, the taxpayer has an inclusion
event with respect to that portion of its
qualifying investment, and neither section
1400Z-2(b)(2)(B)(iii) or (iv) nor section
1400Z-2(c) applies to that portion of the
taxpayer’s qualifying investment after the
date it became worthless.
(15) Other inclusion and non-inclusion
events. Notwithstanding any other provi-
sion of this paragraph (c), the Commis-
sioner may determine by published guid-
ance that a type of transaction is or is not
an inclusion event.
(d) Holding periods—(1) Holding peri-
od for QOF investment—(i) General rule.
Solely for purposes of sections 1400Z-2(b)
(2)(B) and 1400Z-2(c), and except as oth-
erwise provided in this paragraph (d)(1),
the length of time a qualifying investment
has been held is determined without re-
gard to the period for which the taxpayer
had held property exchanged for such in-
vestment.
(ii) Holding period for QOF invest-
ment received in a qualifying section 381
transaction, a reorganization described
in section 368(a)(1)(E), or a section
1036 exchange. For purposes of section
1400Z-2(b)(2)(B) and 1400Z-2(c), the
holding period for QOF stock received
by a taxpayer in a qualifying section 381
transaction in which the target corpora-
tion was a QOF immediately before the
acquisition and the acquiring corporation
is a QOF immediately after the acqui-
sition, in a reorganization described in
section 368(a)(1)(E), or in a section 1036
exchange, is determined by applying the
principles of section 1223(1).
(iii) Holding period for controlled cor-
poration stock. For purposes of section
1400Z-2(b)(2)(B) and 1400Z-2(c), the
holding period of a qualifying investment
in a controlled corporation received by a
taxpayer on its qualifying investment in
the distributing corporation in a qualifying
section 355 transaction is determined by
applying the principles of section 1223(1).
(iv) Tacking with donor or deceased
owner. For purposes of section 1400Z-2(b)
(2)(B) and 1400Z-2(c), the holding period
of a qualifying investment held by a tax-
payer who received that qualifying invest-
ment as a gift that was not an inclusion
event, or by reason of the prior owner’s
death, includes the time during which that
qualifying investment was held by the do-
nor or the deceased owner, respectively.
(2) Determination of original use of
QOF assets—(i) Assets acquired in a sec-
tion 381 transaction. For purposes of sec-
tion 1400Z-2(d), including for purposes
of determining whether the original use of
qualified opportunity zone business prop-
erty commences with the acquiring cor-
poration, any qualified opportunity zone
property transferred by the transferor QOF
to the acquiring corporation in connection
with a qualifying section 381 transaction
does not lose its status as qualified oppor-
tunity zone property solely as a result of
its transfer to the acquiring corporation.
(ii) Assets contributed to a controlled
corporation. For purposes of section
1400Z-2(d), including for purposes of
determining whether the original use of
qualified opportunity zone business prop-
erty commences with the controlled cor-
poration, any qualified opportunity zone
property contributed by the distributing
corporation to the controlled corporation
in connection with a qualifying section
355 transaction does not lose its status as
qualified opportunity zone property solely
as a result of its contribution to the con-
trolled corporation.
(3) Application to partnerships. The
principles of paragraphs (d)(1) and (2) of
this section apply to qualifying QOF part-
nership interests with regard to non-inclu-
sion transactions described in paragraph
(c)(6)(ii) of this section.
(e) Amount includible. Except as
provided in §1.1400Z2(a)-1(b)(4), the
amount of gain included in gross income
under section 1400Z-2(a)(1)(B) on a date
described in paragraph (b) of this section
is determined under this paragraph (e).
(1) In general. Except as provided in
paragraphs (e)(2) and (4) of this section,
and subject to paragraph (e)(5) of this sec-
tion, in the case of an inclusion event, the
amount of gain included in gross income
is equal to the excess of the amount de-
scribed in paragraph (e)(1)(i) of this sec-
tion over the amount described in para-
graph (e)(1)(ii) of this section.
(i) The amount described in this para-
graph (e)(1)(i) is equal to the lesser of:
(A) An amount which bears the same
proportion to the remaining deferred gain,
as:
(1) The fair market value of the portion
of the qualifying investment that is dis-
posed of in the inclusion event, as deter-
mined as of the date of the inclusion event,
bears to;
(2) The fair market value of the total
qualifying investment immediately before
the inclusion event; or
(B) The amount described in paragraph
(e)(1)(i)(A)(1) of this section.
(ii) The amount described in this para-
graph (e)(1)(ii) is the taxpayer’s basis in

May 20, 2019 1226 Bulletin No. 2019–21
the portion of the qualifying investment
that is disposed of in the inclusion event.
(iii) For purposes of paragraph (e)(1)(i)
(A)(1) of this section, the fair market val-
ue of that portion is determined by mul-
tiplying the fair market value of the tax-
payer’s entire qualifying investment in the
QOF, valued as of the date of the inclusion
event, by the percentage of the taxpayer’s
qualifying investment that is represented
by the portion disposed of in the inclusion
event.
(2) Property received from a QOF in
certain transactions. In the case of an in-
clusion event described in paragraph (c)
(6)(iii) or (v) or (c)(8), (9), (10), (11), or
(12) of this section, the amount of gain
included in gross income is equal to the
lesser of:
(i) The remaining deferred gain; or
(ii) The amount that gave rise to the
inclusion event. See paragraph (c) of this
section for rules regarding the amount that
gave rise to the inclusion event, and see
paragraph (g) of this section for applicable
ordering rules.
(3) Gain recognized on December 31,
2026. The amount of gain included in
gross income on December 31, 2026 is
equal to the excess of—
(i) The lesser of—
(A) The remaining deferred gain; and
(B) The fair market value of the qual-
ifying investment held on December 31,
2026; over
(ii) The taxpayer’s basis in the qual-
ifying investment as of December 31,
2026, taking into account only section
1400Z-2(b)(2)(B).
(4) Special amount includible rule for
partnerships and S corporations. For pur-
poses of paragraphs (e)(1) and (3) of this
section, in the case of an inclusion event
involving a qualifying investment in a
QOF partnership or S corporation, or in
the case of a qualifying investment in a
QOF partnership or S corporation held on
December 31, 2026, the amount of gain
included in gross income is equal to the
lesser of:
(i) The product of:
(A) The percentage of the qualifying
investment that gave rise to the inclusion
event; and
(B) The remaining deferred gain, less
any basis adjustments pursuant to section
1400Z-2(b)(2)(B)(iii) and (iv); or
(ii) The gain that would be recognized
on a fully taxable disposition of the qual-
ifying investment that gave rise to the in-
clusion event.
(5) Limitation on amount of gain in-
cluded after statutory five- and seven-year
basis increases. The total amount of gain
included in gross income under this para-
graph (e) is limited to the amount deferred
under section 1400Z-2(a)(1), reduced by
any increase in the basis of the qualify-
ing investment made pursuant to section
1400Z-2(b)(2)(B)(iii) or (iv). See para-
graph (g)(2) of this section for limitations
on the amount of basis adjustments under
section 1400Z-2(b)(2)(B)(iii) and (iv).
(f) Examples. The following examples
illustrate the rules of paragraphs (c), (d)
and (e) of this section. For purposes of the
following examples: A, B, C, W, X, Y, and
Z are C corporations that do not file a con-
solidated Federal income tax return; Q is
a QOF corporation or a QOF partnership,
as specified in each example; and each di-
visive corporate transaction satisfies the
requirements of section 355.
(1) Example 1: Determination of basis, hold-
ing period, and qualifying investment—(i) Facts. A
wholly and directly owns Q, a QOF corporation. On
May 31, 2019, A sells a capital asset to an unrelated
party and realizes $500 of capital gain. On October
31, 2019, A transfers unencumbered asset N to Q
in exchange for a qualifying investment. Asset N,
which A has held for 10 years, has a basis of $500
and a fair market value of $500. A elects to defer
the inclusion of $500 in gross income under section
1400Z-2(a) and §1.1400Z2(a)-1.
(ii) Analysis. Under §1.1400Z2(a)-1(b)(10)(i)(B)
(1), A made a qualifying investment of $500. Under
section 1400Z-2(b)(2)(B)(i), A’s basis in its qualify-
ing investment in Q is $0. For purposes of sections
1400Z-2(b)(2)(B) and 1400Z-2(c), A’s holding peri-
od in its new investment in Q begins on October 31,
2019. See paragraph (d)(1)(i) of this section. Other
than for purposes of applying section 1400Z-2, A has
a 10-year holding period in its new Q investment as
of October 31, 2019.
(iii) Transfer of built-in gain property. The facts
are the same as in this Example 1 in paragraph (f)
(1)(i) of this section, but A’s basis in transferred as-
set N is $200. Under §1.1400Z2(a)-1(b)(10)(i)(B)
(1), A made a qualifying investment of $200 and a
non-qualifying investment of $300.
(2) Example 2: Transfer of qualifying invest-
ment—(i) Facts. On May 31, 2019, A sells a capi-
tal asset to an unrelated party and realizes $500 of
capital gain. On October 31, 2019, A transfers $500
to newly formed Q, a QOF corporation, in exchange
for a qualifying investment. On February 29, 2020,
A transfers 25 percent of its qualifying investment in
Q to newly formed Y in exchange for 100 percent of
Y’s stock in a transfer to which section 351 applies
(the Transfer), at a time when the fair market value of
A’s qualifying investment in Q is $800.
(ii) Analysis. Under §1.1400Z2(a)-1(b)(10)(i)
(A), A made a qualifying investment of $500 on Oc-
tober 31, 2019. In the Transfer, A exchanged 25 per-
cent of its qualifying investment for Federal income
tax purposes, which reduced A’s direct qualifying
investment. Under paragraph (c)(1)(i) of this sec-
tion, the Transfer is an inclusion event to the extent
of the reduction in A’s direct qualifying investment.
Under paragraph (e)(1) of this section, A therefore
includes in income an amount equal to the excess of
the amount described in paragraph (e)(1)(i) of this
section over A’s basis in the portion of the qualifying
investment that was disposed of, which in this case
is $0. The amount described in paragraph (e)(1)(i) is
the lesser of:
(A) $125 ($500 x ($200 / $800)); or
(B) $200. As a result, A must include $125 of its
deferred capital gain in income in 2020. After the
Transfer, the Q stock is not qualifying Q stock in Y’s
hands.
(iii) Disregarded transfer. The facts are the same
as in this Example 2 in paragraph (f)(2)(i) of this sec-
tion, except that Y elects to be treated as an entity
that is disregarded as an entity separate from its own-
er for Federal income tax purposes effective prior to
the Contribution. Since the Transfer would be disre-
garded for Federal income tax purposes, A’s transfer
of its qualifying investment in Q would not be treat-
ed as a reduction in direct tax ownership for Federal
income tax purposes, and the Transfer would not be
an inclusion event with respect to A’s qualifying in-
vestment in Q for purposes of section 1400Z-2(b)(1)
and paragraph (b) of this section. Thus, A would not
be required to include in income any portion of its
deferred capital gain.
(iv) Election to be treated as a corporation. The
facts are the same as in this Example 2 in paragraph
(f)(2)(iii) of this section, except that Y (a disregarded
entity) subsequently elects to be treated as a corpo-
ration for Federal income tax purposes. A’s deemed
transfer of its qualifying investment in Q to Y under
§301.7701-3(g)(1)(iv) of this chapter is an inclusion
event for purposes of section 1400Z-2(b)(1) and
paragraph (b) of this section.
(3) Example 3: Part sale of qualifying QOF part-
nership interest in Year 6 when value of the QOF
interest has increased—(i) Facts. In October 2018,
A and B each realize $200 of eligible gain, and C
realizes $600 of eligible gain. On January 1, 2019,
A, B, and C form Q, a QOF partnership. A contrib-
utes $200 of cash, B contributes $200 of cash, and C
contributes $600 of cash to Q in exchange for qual-
ifying QOF partnership interests in Q. A, B, and C
hold 20 percent, 20 percent, and 60 percent interests
in Q, respectively. On January 30, 2019, Q obtains
a nonrecourse loan from a bank for $1,000. Under
section 752, the loan is allocated $200 to A, $200
to B, and $600 to C. On February 1, 2019, Q pur-
chases qualified opportunity zone business property
for $2,000. On July 31, 2024, A sells 50 percent of
its qualifying QOF partnership interest in Q to B for
$400 cash. Prior to the sale, there were no inclusion
events, distributions, partner changes, income or loss
allocations, or changes in the amount or allocation of
debt outstanding. At the time of the sale, the fair mar-

Bulletin No. 2019–21 1227 May 20, 2019
ket value of Q’s qualified opportunity zone business
property is $5,000.
(ii) Analysis. Because A held its qualifying QOF
partnership interest for at least five years, A’s basis
in its partnership interest at the time of the sale is
$220 (the original zero basis with respect to the con-
tribution, plus the $200 debt allocation, plus the 10%
increase for interests held for five years). The sale of
50 percent of A’s qualifying QOF partnership interest
to B requires A to recognize $90 of eligible gain, the
lesser of 50 percent of the remaining $180 deferred
gain ($90) or the gain that would be recognized on
a taxable sale of 50 percent of the interest ($390). A
also recognizes $300 of gain relating to the apprecia-
tion of its interest in Q.
(4) Example 4: Sale of qualifying QOF part-
nership interest when value of the QOF interest has
decreased—(i) Facts. The facts are the same as in
Example 3 in paragraph (f)(3) of this section, except
that A sells 50 percent of its qualifying QOF part-
nership interest in Q to B for cash of $50, and at the
time of the sale, the fair market value of Q’s qualified
opportunity zone business property is $1,500.
(ii) Analysis. Because A held its qualifying
QOF partnership interest for at least five years, A’s
basis at the time of the sale is $220. Under section
1400Z-2(b)(2)(A), the sale of 50 percent of A’s qual-
ifying QOF partnership interest to B requires A to
recognize $40 of eligible gain, the lesser of $90 (50
percent of A’s remaining deferred gain of $180) or
$40 (the gain that would be recognized by A on a sale
of 50 percent of its QOF interest). A’s remaining ba-
sis in its qualifying QOF partnership interest is $110.
(5) Example 5: Amount includible on December
31, 2026—(i) Facts. The facts are the same as in Ex-
ample 3 in paragraph (f)(3) of this section, except
that no sale of QOF interests takes place in 2024.
Prior to December 31, 2026, there were no inclusion
events, distributions, partner changes, income or loss
allocations, or changes in the amount or allocation of
debt outstanding.
(ii) Analysis. For purposes of calculating the
amount includible on December 31, 2026, each of
A’s basis and B’s basis is increased by $30 to $230,
and C’s basis is increased by $90 to $690 because
they held their qualifying QOF partnership interests
for at least seven years. Each of A and B is required
to recognize $170 of eligible gain, and C is required
to recognize $510 of eligible gain.
(iii) Sale of qualifying QOF partnership inter-
ests. The facts are the same as in this Example 5 in
paragraph (f)(5)(i) of this section, except that, on
March 2, 2030, C sells its entire qualifying QOF
partnership interest in Q to an unrelated buyer for
cash of $4,200. Assuming an election under section
1400Z-2(c) is made, the basis of C’s Q interest is in-
creased to its fair market value immediately before
the sale by C. C is treated as purchasing the inter-
est immediately before the sale and the bases of the
partnership’s assets are increased in the manner they
would be if the partnership had an election under
section 754 in effect.
(6) Example 6: Mixed-funds investment—(i)
Facts. On January 1, 2019, A and B form Q, a QOF
partnership. A contributes $200 to Q, $100 of which
is a qualifying investment, and B contributes $200 to
Q in exchange for a qualifying investment. All the
cash is used to purchase qualified opportunity zone
property. Q has no liabilities. On March 30, 2023,
when the values and bases of the qualifying invest-
ments remain unchanged, Q distributes $50 to A.
(ii) Analysis. Under paragraph (c)(6)(iv) of this
section, A is a mixed-funds partner holding two
separate interests, a qualifying investment and a
non-qualifying investment. One half of the $50
distribution is treated under that provision as being
made with respect to A’s qualifying investment. For
the $25 distribution made with respect to the quali-
fying investment, A is required to recognize $25 of
eligible gain.
(iii) Basis adjustments. Under paragraph (g)(1)
(ii)(B) of this section, prior to determining the tax
consequences of the distribution, A increases its ba-
sis in its qualifying QOF partnership interest by $25
under section 1400Z-2(b)(2)(B)(ii). The distribution
of $25 results in no gain under section 731. After the
distribution, A’s basis in its qualifying QOF partner-
ship interest is $0 ($25-$25).
(7) Example 7: Qualifying section 381 transac-
tion of a QOF corporation—(i) Facts. X wholly and
directly owns Q, a QOF corporation. On May 31,
2019, X sells a capital asset to an unrelated party and
realizes $500 of capital gain. On October 31, 2019,
X contributes $500 to Q in exchange for a qualifying
investment. In 2020, Q merges with and into unrelat-
ed Y (with Y surviving) in a transaction that qualifies
as a reorganization under section 368(a)(1)(A) (the
Merger). X does not receive any boot in the Merger
with respect to its qualifying investment in Q. Imme-
diately after the Merger, Y satisfies the requirements
for QOF status under section 1400Z-2(d)(1) (see
paragraph (c)(10)(i)(B) of this section).
(ii) Analysis. The Merger is not an inclusion
event for purposes of section 1400Z-2(b)(1) and
paragraph (b) of this section. See paragraph (c)(10)
(i)(A) of this section. Accordingly, X is not required
to include in income in 2020 its $500 of deferred
capital gain as a result of the Merger. For purposes of
section 1400Z-2(b)(2)(B) and 1400Z-2(c), X’s hold-
ing period for its investment in Y is treated as begin-
ning on October 31, 2019. For purposes of section
1400Z-2(d), Y’s holding period in its assets includes
Q’s holding period in its assets, and Q’s qualified op-
portunity zone business property continues to qualify
as such. See paragraph (d)(2)(i) of this section.
(iii) Merger of QOF shareholder. The facts are
the same as in this Example 7 in paragraph (f)(7)(i)
of this section, except that, in 2020, X (rather than
Q) merges with and into Y in a section 381 transac-
tion in which Y acquires all of X’s qualifying interest
in Q, and Y does not qualify as a QOF immediately
after the merger. The merger transaction is not an in-
clusion event for purposes of section 1400Z-2(b)(1)
and paragraph (b) of this section. See paragraph (c)
(10)(ii) of this section.
(iv) Receipt of boot. The facts are the same as in
this Example 7 in paragraph (f)(7)(i) of this section,
except that the value of X’s qualifying investment
immediately before the Merger is $1,000, X receives
$100 of cash in addition to Y stock in the Merger
in exchange for its qualifying investment, and nei-
ther Q nor Y has any earnings and profits. X realizes
$1,000 of gain in the Merger. Under paragraphs (c)
(10)(i)(C)(1) and (e)(2) of this section, X is required
to include $100 of its deferred capital gain in income
in 2020.
(v) Realization of loss. The facts are the same as
in this Example 7 in paragraph (f)(7)(iv) of this sec-
tion, except that the Merger occurs in 2025, the val-
ue of X’s qualifying investment immediately before
the Merger is $25, and X receives $10 of boot in the
Merger. X realizes $25 of loss in the Merger. Under
paragraphs (c)(10)(i)(C)(1) and (e)(2) of this section,
X is required to include $10 of its deferred capital
gain in income in 2020.
(8) Example 8: Section 355 distribution by a
QOF—(i) Facts. A wholly and directly owns Q, a
QOF corporation, which wholly and directly owns
Y, a corporation that is a qualified opportunity zone
business. On May 31, 2019, A sells a capital asset
to an unrelated party and realizes $500 of capital
gain. On October 31, 2019, A contributes $500 to
Q in exchange for a qualifying investment. On June
26, 2025, Q distributes all of the stock of Y to A in
a transaction in which no gain or loss is recognized
under section 355 (the Distribution). Immediately
after the Distribution, each of Q and Y satisfies the
requirements for QOF status (see paragraph (c)(11)
(i)(B)(2) of this section).
(ii) Analysis. Because each of Q (the distributing
corporation) and Y (the controlled corporation) is a
QOF immediately after the Distribution, the Distri-
bution is a qualifying section 355 transaction. Thus,
the Distribution is not an inclusion event for purpos-
es of section 1400Z-2(b)(1) and paragraph (b) of this
section.. See paragraph (c)(11)(i)(B) of this section.
Accordingly, A is not required to include in income
in 2025 any of its $500 of deferred capital gain as
a result of the Distribution. For purposes of section
1400Z-2(b)(2)(B) and 1400Z-2(c), A’s holding pe-
riod for its qualifying investment in Y is treated as
beginning on October 31, 2019. See paragraph (d)(2)
(i) of this section.
(iii) Section 355 distribution by a QOF share-
holder. The facts are the same as in this Example
8 in paragraph (f)(8)(i) of this section, except that
A distributes 80 percent of the stock of Q (all of
which is a qualifying investment in the hands of A)
to A’s shareholders in a transaction in which no gain
or loss is recognized under section 355. The distri-
bution is an inclusion event for purposes of section
1400Z-2(b)(1) and paragraph (b) of this section, and
A is required to include in income $400 (80 percent
of its $500 of deferred capital gain) as a result of the
distribution. See paragraphs (c)(1) and (c)(11)(ii) of
this section.
(iv) Distribution of boot. The facts are the same
as in this Example 8 in paragraph (f)(8)(i) of this sec-
tion, except that A receives boot in the Distribution.
Under paragraphs (c)(8) and (c)(11)(i)(B)(3) of this
section, the receipt of boot in the Distribution is an
inclusion event for purposes of section 1400Z-2(b)
(1) and paragraph (b) of this section to the extent of
gain recognized pursuant to section 301(c)(3).
(v) Section 355 split-off. The facts are the same
as in this Example 8 in paragraph (f)(8)(i) of this sec-
tion, except that Q stock is directly owned by both A
and B (each of which has made a qualifying invest-
ment in Q), and Q distributes all of the Y stock to B
in exchange for B’s Q stock in a transaction in which
no gain or loss is recognized under section 355. The
distribution is a qualifying section 355 transaction
and is not an inclusion event for purposes of section
1400Z-2(b)(1) and paragraph (b) of this section. Nei-

May 20, 2019 1228 Bulletin No. 2019–21
ther A nor B is required to include its deferred capital
gain in income in 2025 as a result of the distribution.
(vi) Section 355 split-up. The facts are the same
as in this Example 8 in paragraph (f)(8)(v) of this
section, except that Q wholly and directly owns both
Y and Z; Q distributes all of the Y stock to A in ex-
change for A’s Q stock and distributes all of the Z
stock to B in exchange for B’s Q stock in a trans-
action in which no gain or loss is recognized under
section 355; Q then liquidates; and immediately
after the Distribution, each of Y and Z satisfies the
requirements for QOF status. The distribution is a
qualifying section 355 transaction and is not an in-
clusion event for purposes of section 1400Z-2(b)(1)
and paragraph (b) of this section. Neither A nor B
is required to include its deferred capital gain in in-
come in 2025 as a result of the transaction.
(vii) Section 355 split-off with boot. The facts are
the same as in this Example 8 in paragraph (f)(8)(v)
of this section, except that B also receives boot. Un-
der paragraph (c)(11)(i)(B)(3) of this section, B has
an inclusion event , and the amount that gives rise
to the inclusion event is the amount of gain under
section 356 that is not treated as a dividend under
section 356(a)(2).
(9) Example 9: Recapitalization—(i) Facts. On
May 31, 2019, each of A and B sells a capital asset to
an unrelated party and realizes $500 of capital gain.
On October 31, 2019, A contributes $500 to newly
formed Q in exchange for 50 shares of Q non-voting
stock (A’s qualifying investment) and B contributes
$500 to Q in exchange for 50 shares of Q voting
stock (B’s qualifying investment). A and B are the
sole shareholders of Q. In 2020, when A’s qualifying
investment is worth $600, A exchanges all of its Q
non-voting stock for $120 and 40 shares of Q voting
stock in a transaction that qualifies as a reorganiza-
tion under section 368(a)(1)(E).
(ii) Analysis. Because A’s proportionate interest
in Q has decreased in this transaction, the recapi-
talization is an inclusion event under paragraph (c)
(12)(ii) of this section. Thus, A is treated as having
reduced its direct tax ownership of its investment in
Q to the extent of the reduction in the fair market
value of its qualifying QOF stock. The $120 that A
received in the reorganization represents the differ-
ence in fair market value between its qualifying in-
vestment before and after the reorganization. Under
paragraphs (c)(12)(i)(B) and (e)(2) of this section,
A is required to include $120 of its deferred capital
gain in income in 2020. Because B’s proportionate
interest in Q has not decreased, and because B did
not receive any property in the recapitalization, B
does not have an inclusion event with respect to its
qualifying investment in Q. See paragraph (c)(12)
(i) of this section. Therefore, B is not required to in-
clude any of its deferred gain in income as a result of
this transaction.
(10) Example 10: Debt financed distribution—(i)
Facts. On January 1, 2019, A and B form Q, a QOF
partnership, each contributing $200 that is deferred
under the section 1400Z-2(a) election to Q in ex-
change for a qualifying investment. On November
18, 2022, Q obtains a nonrecourse loan from a bank
for $300. Under section 752, the loan is allocated
$150 to A and $150 to B. On November 30, 2022,
when the values and bases of the investments remain
unchanged, Q distributes $50 to A.
(ii) Analysis. A is not required to recognize
gain under §1.1400Z2(b)-1(c) because A’s basis in
its qualifying investment is $150 (the original zero
basis with respect to the contribution, plus the $150
debt allocation). The distribution reduces A’s basis
to $100.
(11) Example 11: Debt financed distribution in
excess of basis—(i) Facts. The facts are the same as
in Example 10 in paragraph (f)(10) of this section,
except that the loan is entirely allocated to B under
section 752. On November 30, 2024, when the val-
ues of the investments remain unchanged, Q distrib-
utes $50 to A.
(ii) Analysis. Under §1.1400Z2(b)-1(c)(6)(iii), A
is required to recognize $30 of eligible gain under
section §1.1400Z2(b)-1(c) because the $50 distribut-
ed to A exceeds A’s $20 basis in its qualifying invest-
ment (the original zero basis with respect to its con-
tribution, plus $20 with regard to section 1400Z-2(b)
(2)(B)(iii)).
(12) Example 12: Aggregate ownership change
threshold—(i) Facts. On May 31, 2019, B, an S cor-
poration, sells a capital asset to an unrelated party for
cash and realizes $500 of capital gain. On July 15,
2019, B makes a deferral election and transfers the
$500 to Q, a QOF partnership in exchange for a qual-
ifying investment. On that date, B has outstanding
100 shares, of which each of individuals D, E, F, and
G owns 25 shares. On September 30, 2019, D sells
10 shares of its B stock. On September 30, 2020, E
sells 16 shares of its B stock.
(ii) Analysis. Under paragraph (c)(7)(iii)(A) of
this section, the sales of stock by D and E caused
an aggregate change in ownership of B because,
the percentage of the stock of B owned directly by
D, E, F, and G at the time of B’s deferral election
decreased by more than 25 percent. Solely for pur-
poses of section 1400Z-2, B’s qualifying investment
in Q would be treated as disposed of. Consequently,
B would have an inclusion event with respect to all
of B’s remaining deferred gain of $500, and neither
section 1400Z-2(b)(2)(B)(iii) or (iv), nor section
1400Z-2(c), would apply to B’s qualifying invest-
ment after that date.
(g) Basis adjustments—(1) Timing
of section 1400Z-2(b)(2)(B)(ii) adjust-
ments—(i) In general. Except as provided
in paragraph (g)(1)(ii) of this section, ba-
sis adjustments under section 1400Z-2(b)
(2)(B)(ii) are made immediately after the
amount of gain determined under section
1400Z-2(b)(2)(A) is included in income
under section 1400Z-2(b)(1). If the basis
adjustment under section 1400Z-2(b)(2)
(B)(ii) is being made as a result of an in-
clusion event, then the basis adjustment
is made before determining the other tax
consequences of the inclusion event.
(ii) Specific application to section
301(c)(3) gain, S corporation shareholder
gain, or partner gain—(A) General rule.
This paragraph (g)(1)(ii) applies if a QOF
makes a distribution to its owner, and if,
without regard to any basis adjustment un-
der section 1400Z-2(b)(2)(B)(ii), at least a
portion of the distribution would be char-
acterized as gain under section 301(c)(3)
or paragraphs (c)(6)(iii) and (c)(7)(ii) of
this section with respect to its qualifying
investment.
(B) Ordering rule. If paragraph (g)(1)
(ii) of this section applies, the taxpayer
is treated as having an inclusion event to
the extent provided in paragraph (c)(6)
(iii) or (c)(7), (8), (9), (10), (11), or (12)
of this section, as applicable. Then, the
taxpayer increases its basis under section
1400Z-2(b)(2)(B)(ii), before determining
the tax consequences of the distribution.
(C) Example. The following example
illustrates the rules of this paragraph (g)
(1)(ii).
(1) Example 1—(i) Facts. On May 31, 2019, A
sells a capital asset to an unrelated party and realizes
$500 of capital gain. On October 31, 2019, A contrib-
utes $500 to Q, a newly formed QOF corporation, in
exchange for all of the outstanding Q common stock
and elects to defer the recognition of $500 of capital
gain under section 1400Z-2(a) and §1.1400Z2(a)-1.
In 2020, when Q has $40 of earnings and profits, Q
distributes $100 to A (the Distribution).
(ii) Recognition of gain. Under paragraph (g)(1)
(ii)(A) of this section, the Distribution is first eval-
uated without regard to any basis adjustment under
section 1400Z-2(b)(2)(B)(ii). Of the $100 distribu-
tion, $40 is treated as a dividend and $60 is treated
as gain from the sale or exchange of property under
section 301(c)(3), because A’s basis in its Q stock is
$0 under section 1400Z-2(b)(2)(B)(i). Under para-
graphs (c)(8) and (e)(2) of this section, $60 of A’s
gain that was deferred under section 1400Z-2(a) and
§1.1400Z2(a)-1 is recognized in 2020.
(iii) Basis adjustments. Under paragraph (g)(1)
(ii)(B) of this section, prior to determining the fur-
ther tax consequences of the Distribution, A increas-
es its basis in its Q stock by $60 in accordance with
section 1400Z-2(b)(2)(B)(ii). As a result, the Distri-
bution is characterized as a dividend of $40 under
section 301(c)(1) and a return of basis of $60 under
section 301(c)(2). Therefore, after the section 301
distribution, A’s basis in Q is $0 ($60 - $60).
(2) [Reserved]
(2) Amount of basis adjustment. The in-
creases in basis under section 1400Z-2(b)
(2)(B)(iii) and (iv) only apply to that por-
tion of the qualifying investment that has
not been subject to previous gain inclu-
sion under section 1400Z-2(b)(2)(A).
(3) Special partnership rules—(i) Gen-
eral rule. The initial basis under section
1400Z-2(b)(2)(B)(i) of a qualifying in-
vestment in a QOF partnership is zero, as
adjusted to take into account the contrib-
uting partner’s share of partnership debt
under section 752.

Bulletin No. 2019–21 1229 May 20, 2019
(ii) Tiered arrangements. Any basis ad-
justment described in section 1400Z-2(b)
(2)(B)(iii) and (iv) and section 1400Z-2(c)
(the basis adjustment rules) shall be treat-
ed as an item of income described in sec-
tion 705(a)(1) and shall be reported in
accordance with the applicable forms and
instructions. Any amount to which the ba-
sis adjustment rules or to which section
1400Z-2(b)(1) applies shall be allocated
to the owners of the QOF, and to the own-
ers of any partnership that directly or in-
directly (solely through one or more part-
nerships) owns such QOF interest, and
shall track to such owners’ interests, based
on their shares of the remaining deferred
gain to which such amounts relate.
(4) Basis adjustments in S corpora-
tion stock—(i) S corporation investor in
QOF—(A) S corporation. If an S corpora-
tion is an investor in a QOF, the S corpora-
tion must adjust the basis of its qualifying
investment as set forth in this paragraph
(g). The rule in this paragraph (g)(4)(i)(A)
does not affect adjustments to the basis of
any other asset of the S corporation.
(B) S corporation shareholder—(1) In
general. The S corporation shareholder’s
pro-rata share of any recognized capital
gain that has been deferred at the S corpo-
ration level will be separately stated under
section 1366 and will adjust the share-
holders’ stock basis under section 1367.
(2) Basis adjustments to qualifying
investments. Any adjustment made to the
basis of an S corporation’s qualifying in-
vestment under section 1400Z-2(b)(2)(B)
(iii) or (iv), or section 1400Z-2(c), will
not:
(i) Be separately stated under section
1366; or
(ii) Until the date on which an inclu-
sion event with respect to the S corpora-
tion’s qualifying investment occurs, adjust
the shareholders’ stock basis under sec-
tion 1367.
(3) Basis adjustments resulting from
inclusion events. If the basis adjustment
under section 1400Z-2(b)(2)(B)(ii) is be-
ing made as a result of an inclusion event,
then the basis adjustment is made before
determining the other tax consequences of
the inclusion event.
(ii) QOF S corporation—(A) Trans-
ferred basis of assets received. If a
QOF S corporation receives an asset in
exchange for a qualifying investment, the
basis of the asset shall be the same as it
would be in the hands of the transferor,
increased by the amount of the gain rec-
ognized by the transferor on such transfer.
(B) Basis adjustments resulting from
inclusion events. If the basis adjustment
under section 1400Z-2(b)(2)(B)(ii) for
the shareholder of the QOF S corporation
is being made as a result of an inclusion
event, then the basis adjustment is made
before determining the other tax conse-
quences of the inclusion event.
(h) Notifications by partners and part-
nerships, and shareholders and S corpo-
rations—(1) Notification of deferral elec-
tion. A partnership that makes a deferral
election must notify all of its partners of
the deferral election and state each part-
ner’s distributive share of the eligible gain
in accordance with applicable forms and
instructions. A partner that makes a defer-
ral election must notify the partnership in
writing of its deferral election, including
the amount of the eligible gain deferred.
(2) Notification of deferred gain recog-
nition by indirect QOF owner. If an indi-
rect owner of a QOF partnership or QOF
S corporation sells a portion of its part-
nership interest or S corporation shares
in a transaction to which §1.1400Z2(b)-
1(c)(6)(iv) applies, or which is subject to
§1.1400Z2(b)-1(c)(7)(iii), such indirect
owner must provide to the QOF owner
notification and information sufficient to
enable the QOF owner, in a timely man-
ner, to recognize an appropriate amount of
deferred gain.
(3) Notification of section 1400Z-2(c)
election by QOF partner or QOF part-
nership. A QOF partner must notify the
QOF partnership of an election under sec-
tion 1400Z-2(c) to adjust the basis of the
qualifying QOF partnership interest that is
disposed of in a taxable transaction. No-
tification of the section 1400Z-2(c) elec-
tion, and the adjustments to the basis of
the qualifying QOF partnership interest(s)
disposed of or to the QOF partnership as-
set(s) disposed of, is to be made in accor-
dance with applicable forms and instruc-
tions.
(4) S corporations. Similar rules to
those in paragraphs (h)(1) and (3) of this
section apply to S corporations as appro-
priate.
(i) Applicability dates. This section
applies for taxable years that begin on or
after the date of publication in the Federal
Register of a Treasury decision adopting
these proposed rules as final regulations.
However, a taxpayer may rely on the pro-
posed rules in this section with respect to
taxable years that begin before that date,
but only if the taxpayer applies the rules in
their entirety and in a consistent manner.
Par. 4. Section 1.1400Z2(c)-1, as
proposed to be added by 83 FR 54279
October 29, 2018, is amended by:
1. Revising paragraph (a).
2. Redesignating paragraphs (b), (c),
and (d) as paragraphs (c), (d), and (f)
respectively.
3. Adding new paragraph (b).
4. Revising newly redesignated para-
graph (d) introductory text.
5. In newly redesignated paragraph (d)
(1)(ii), removing the language “para-
graph (b) of this section” and adding
in its place “paragraph (c) of this
section” and removing the language
“paragraph (a) of this section” and
adding in its place “paragraphs (a)
and (b) of this section”.
6. Adding paragraph (d)(2).
7. Adding paragraph (e).
8. Revising newly redesignated para-
graph (f).
The revisions and additions read as fol-
lows:
§1.1400Z2(c)-1 Investments held for at
least 10 years.
(a) Scope and definitions—(1) Scope.
This section provides rules under section
1400Z-2(c) of the Internal Revenue Code
regarding the election to adjust the basis in
a qualifying investment in a QOF or cer-
tain eligible property held by the QOF. See
§1.1400Z2(b)-1(d) for purposes of deter-
mining the holding period of a qualifying
investment for purposes of this section.
(2) Definitions. The definitions provid-
ed in §1.1400Z2(b)-1(a)(2) apply for pur-
poses of this section.
(b) Investment to which an election can
be made—(1) In general—(i) Election by
taxpayer. If the taxpayer sells or exchang-
es a qualifying investment that it has held
for at least 10 years, then the taxpayer
can make an election described in section
1400Z-2(c) on the sale or exchange of the
qualifying investment.

May 20, 2019 1230 Bulletin No. 2019–21
(ii) Limitation on the 10-year rule.
As required by section 1400Z-2(e)(1)(B)
(treatment of investments with mixed
funds), section 1400Z-2(c) applies only
to the portion of an investment in a QOF
with respect to which a proper election
to defer gain under section 1400Z-2(a)
(1) is in effect. For rules governing the
application of section 1400Z-2(c) to the
portion of an investment in a QOF for
which a loss has been claimed under
section 165(g), see §1.1400Z2(b)-1(c)
(14). See also §1.1400Z2(b)-1(c)(7)(iii)
for rules governing the application of
section 1400Z-2(c) to the portion of an
investment in a QOF held by an S corpo-
ration QOF owner that has an aggregate
change in ownership within the meaning
of §1.1400Z2(b)-1(c)(7)(iii)(B).
(2) Special election rules for QOF
Partnerships and QOF S Corporations—
(i) Dispositions of qualifying QOF part-
nership interests. If a QOF partner’s basis
in a qualifying QOF partnership interest is
adjusted under section 1400Z-2(c), then
the basis of the partnership interest is ad-
justed to an amount equal to the fair mar-
ket value of the interest, including debt,
and immediately prior to the sale or ex-
change, the basis of the QOF partnership
assets are also adjusted, such adjustment
is calculated in a manner similar to a sec-
tion 743(b) adjustment had the transferor
partner purchased its interest in the QOF
partnership for cash equal to fair market
value immediately prior to the sale or ex-
change assuming that a valid section 754
election had been in place. This paragraph
(b)(2)(i) applies without regard to the
amount of deferred gain that was included
under section 1400Z-2(b)(1), or the tim-
ing of that inclusion.
(ii) Dispositions of QOF property by
QOF partnerships or QOF S corpora-
tions—(A) Taxpayer election—(1) In gen-
eral. For purposes of section 1400Z-2(c),
if a taxpayer has held a qualifying invest-
ment (as determined under §1.1400Z2(b)-
1(c)(6)(iv)) in a QOF partnership or QOF
S corporation for at least 10 years, and the
QOF partnership or QOF S corporation
disposes of qualified opportunity zone
property after such 10 year holding pe-
riod, the taxpayer may make an election
to exclude from gross income some or all
of the capital gain arising from such dis-
position reported on Schedule K-1 of the
QOF partnership or QOF S corporation
and attributable to the qualifying invest-
ment. To the extent that the Schedule K-1
of a QOF partnership or QOF S corpora-
tion separately states capital gains arising
from the sale or exchange of any partic-
ular qualified opportunity zone property,
the taxpayer may make an election with
respect to such separately stated item.
(2) Section 1231 gains. An election
described in paragraph (b)(2)(ii)(A)(1)
of this section may be made only with re-
spect to capital gain net income from sec-
tion 1231 property for a taxable year to the
extent of net gains determined under sec-
tion 1231(a) reported on Schedule K-1 of
a QOF partnership or QOF S corporation.
(B) Validity of election. To be valid, the
taxpayer must make an election described
in paragraph (b)(2)(ii)(A)(1) of this sec-
tion for the taxable year in which the capi-
tal gain from the sale or exchange of QOF
property recognized by the QOF part-
nership or QOF S corporation would be
included in the taxpayer’s gross income
(without regard to the election set forth in
this paragraph (b)(2)(ii)), in accordance
with applicable forms and instructions.
(C) Consequences of election. If a
taxpayer makes a valid election under
this paragraph (b)(2)(ii) with respect to
some or all of the capital gain reported
on Schedule K-1 of a QOF partnership or
QOF S corporation, the amount of such
capital gain that the taxpayer elects to ex-
clude from gross income is excluded from
the taxpayer’s income for purposes of the
Internal Revenue Code. Such excluded
amount is treated as an item of income un-
der sections 705(a)(1) or 1366.
* * * * *
(d) * * * The following examples il-
lustrate the principles of paragraphs (a)
through (c) of this section.
* * * * *
(2) Example 2—(i) Facts. In 2019, A and B each
contribute $100 to a QOF partnership for qualifying
QOF partnership interests.
(ii) Sale of qualifying QOF partnership interest.
In 2030 when the QOF assets have a value of $260
and a bases of $200, A sells its partnership interest,
recognizing $30 of gain, $15 of which is attributable
to assets described in section 751(c) and (d), and
for which sale A makes an election under section
1400Z-2(c) and paragraph (b)(2)(i) of this section.
Because A’s election under paragraph (b)(2)(i) of this
section is in effect, with regard to the sale, the bases
of the assets are treated as adjusted to fair market val-
ue immediately before A’s sale and there is no gain
recognized by A.
(iii) Sale of QOF property. The facts are the same
as in this Example 2 in paragraph (d)(2)(i) of this sec-
tion, except that the partnership sells qualified oppor-
tunity zone property with a value of $120 and a basis
of $100, recognizing $20 of gain, allocable $10 to
each partner and A makes an election under section
1400Z-2(c) and paragraph (b)(2)(ii) of this section
for the year in which A’s allocable share of the part-
nership’s recognized gain would be included in A’s
gross income. Because A’s election under paragraph
(b)(2)(ii) of this section is in effect, A will exclude
the $10 allocable share of the partnership’s $20 of
recognized gain.
(e) Capital gain dividends paid by a
QOF REIT that some shareholders may
be able to elect to receive tax free under
section 1400Z–2(c)—(1) Eligibility. For
purposes of paragraph (b) of this section,
if a shareholder of a QOF REIT receives
a capital gain dividend identified with a
date, as defined in paragraph (e)(2) of this
section, then, to the extent that the share-
holder’s shares in the QOF REIT paying
the capital gain dividend are a qualifying
investment in the QOF REIT—
(i) The shareholder may treat the capi-
tal gain dividend, or part thereof, as gain
from the sale or exchange of a qualifying
investment on the date that the QOF REIT
identified with the dividend; and
(ii) If, on the date identified, the share-
holder had held that qualifying investment
in the QOF REIT for at least 10 years,
then the shareholder may apply a zero per-
cent tax rate to that capital gain dividend,
or part thereof.
(2) Definition of capital gain dividend
identified with a date. A capital gain
dividend identified with a date means
an amount of a capital gain dividend, as
defined in section 857(b)(3)(B), or part
thereof, and a date that the QOF REIT
designates in a notice provided to the
shareholder not later than one week af-
ter the QOF REIT designates the capital
gain dividend pursuant to section 857(b)
(3)(B). The notice must be mailed to the
shareholder unless the shareholder has
provided the QOF REIT with an email ad-
dress to be used for this purpose. In the
manner and at the time determined by the
Commissioner, the QOF REIT must pro-
vide the Commissioner all data that the
Commissioner specifies with respect to
the amounts of capital gain dividends and
the dates designated by the QOF REIT for
each shareholder.

Bulletin No. 2019–21 1231 May 20, 2019
(3) General limitations on the amounts
of capital gain with which a date may be
identified—(i) No identification in the ab-
sence of any capital gains with respect to
qualified opportunity zone property. If,
during its taxable year, the QOF REIT did
not realize long-term capital gain on any
sale or exchange of qualified opportunity
zone property, then no date may be iden-
tified with any capital gain dividends, or
parts thereof, with respect to that year.
(ii) Proportionality. Under sec-
tion 857(g)(2), designations of capital
gain dividends identified with a date must
be proportional for all dividends paid with
respect to the taxable year. Greater than de
minimis violation of proportionality inval-
idates all of the purported identifications
for a taxable year.
(iii) Undistributed capital gains. If sec-
tion 857(b)(3)(C)(i) requires a sharehold-
er of a QOF REIT to include a designated
amount in the shareholder’s long-term
capital gain for a taxable year, then inclu-
sion of this amount in this manner is treat-
ed as receipt of a capital gain for purposes
of this paragraph (e) and may be identified
with a date.
(iv) Gross gains. The amount deter-
mined under paragraph (e)(4) of this sec-
tion is determined without regard to any
losses that may have been realized on oth-
er sales or exchanges of qualified oppor-
tunity zone property. The losses do, how-
ever, limit the total amount of capital gain
dividends that may be designated under
section 857(b)(3).
(4) Determination of the amount of
capital gain with which a date may be
identified. A QOF REIT may choose to
identify the date for an amount of capital
gain in one of the following manners:
(i) Simplified determination. If, during
its taxable year, the QOF REIT realizes
long-term capital gain on one or more
sales or exchanges of qualified opportu-
nity zone property, then the QOF REIT
may identify the first day of that taxable
year as the date identified with each des-
ignated amount with respect to the capital
gain dividends for that taxable year. A des-
ignated identification is invalid in its en-
tirety if the amount of gains that the QOF
REIT identifies with that date exceeds the
aggregate long-term capital gains realized
on those sales or exchanges for that tax-
able year.
(ii) Sale date determination—(A) In
general. If, during its taxable year, the
QOF REIT realizes long-term capital
gain on one or more sales or exchanges of
qualified opportunity zone property, then
the QOF REIT may identify capital gain
dividends, or a part thereof, with the latest
date on which there was such a realization.
The amount of capital gain dividends so
identified must not exceed the aggregate
long-term capital gains realized on that
date from sales or exchanges of qualified
opportunity zone property. A designated
identification is invalid in its entirety if the
amount of gains that the QOF REIT iden-
tifies with that date violates the preceding
sentence.
(B) Iterative application. The process
described in paragraph (e)(4)(ii) of this
section is applied iteratively to increas-
ingly earlier transaction dates (from latest
to earliest) until all capital gain dividends
are identified with dates or there are no
earlier dates in the taxable year on which
the QOF REIT realized long-term capital
gains with respect to a sale or exchange
of qualified opportunity zone property,
whichever comes first.
(f) Applicability date. This section
applies to taxable years of a taxpayer,
QOF Partnership, QOF S corporation, or
QOF REIT, as appropriate, that end on or
after the date of publication in the Federal
Register of a Treasury decision adopting
these proposed rules as final regulations.
Par. 5. Section 1.1400Z2(d)-1, as
proposed to be added by 83 FR 54279,
October 29, 2018, is amended by:
1. Revising paragraphs (b) and (c)(4)
through (7).
2. Revising the heading of paragraph (c)
(8).
3. In paragraph (c)(8)(i), removing
“paragraph (c)(4)(ii) of this section”
and adding in its place “this para-
graph (c)(8)(i)”.
4. Adding paragraphs (c)(8)(ii)(B) and
(c)(9).
5. Revising paragraph (d)(2)(i)(A)
through (C) and adding paragraphs
(d)(2)(i)(D) and (E).
6. Redesignating paragraph (d)(2)(iii) as
(d)(2)(iv) and revising newly redesig-
nated paragraph (d)(2)(iv).
7. Redesignating paragraphs (d)(2)(ii)
as (d)(2)(iii) and revising newly re-
designated paragraph (d)(2)(iii).
8. Adding new paragraph (d)(2)(ii).
9. Revising paragraphs (d)(3)(ii)(A)
through (C) and (d)(4)(ii) and the
heading of paragraph (d)(5).
10. Adding a sentence at the end of para-
graph (d)(5)(i) and adding paragraphs
(d)(5)(i)(A) through (E).
11. Adding a sentence at the end of para-
graph (d)(5)(ii)(A).
12. Revising paragraphs (d)(5)(ii)(B),
(d)(5)(iv) introductory text, and (d)
(5)(iv)(A) and (C) and adding para-
graphs (d)(5)(iv)(D) and (E).
13. Redesignating paragraph (d)(5)(viii)
as (d)(5)(ix) and adding a new para-
graph (d)(5)(viii).
14. Adding a sentence at the end of para-
graph (f).
The revisions and additions read as fol-
lows:
§1.1400Z2(d)-1 Qualified Opportunity
Funds.
* * * * *
(b) Valuation of assets for purposes of
the 90-percent asset test—(1) In general.
For purposes of the 90-percent asset test
in section 1400Z-2(d)(1), on an annual
basis, a QOF may value its assets using
the applicable financial statement valua-
tion method set forth in paragraph (b)(2)
of this section, if the QOF has an applica-
ble financial statement within the meaning
of §1.475(a)-4(h), or the alternative val-
uation method set forth in paragraph (b)
(3) of this section. During each taxable
year, a QOF must apply consistently the
valuation method that it selects under this
paragraph (b)(1) to all assets valued with
respect to the taxable year.
(2) Applicable financial statement val-
uation method—(i) In general. Under the
applicable financial statement valuation
method set forth in this paragraph (b)(2),
the value of each asset that is owned or
leased by the QOF is the value of that as-
set as reported on the QOF’s applicable
financial statement for the relevant report-
ing period.
(ii) Requirement for selection of meth-
od. A QOF may select the applicable fi-
nancial statement valuation method set
forth in this paragraph (b)(2) to value an
asset leased by the QOF only if the ap-

May 20, 2019 1232 Bulletin No. 2019–21
plicable financial statement of the QOF
is prepared according to U.S. generally
accepted accounting principles (GAAP)
and requires an assignment of value to the
lease of the asset.
(3) Alternative valuation method—(i)
In general. Under the alternative valuation
method set forth in this paragraph (b)(3),
the value of the assets owned by a QOF
is calculated under paragraph (b)(3)(ii)
of this section, and the value of the assets
leased by a QOF is calculated under para-
graph (b)(3)(iii) of this section.
(ii) Assets that are owned by a QOF.
The value of each asset that is owned by a
QOF is the QOF’s unadjusted cost basis of
the asset under section 1012.
(iii) Assets that are leased by a QOF—
(A) In general. The value of each asset
that is leased by a QOF is equal to the
present value of the leased asset as defined
in paragraph (b)(3)(iii)(C) of this section.
(B) Discount rate. For purposes of cal-
culating present value under paragraph (b)
(3)(iii) of this section, the discount rate is
the applicable Federal rate under section
1274(d)(1), determined by substituting the
term “lease” for “debt instrument.”
(C) Present value. For purposes of
paragraph (b)(3)(iii) of this section, pres-
ent value of a leased asset—
(1) Is equal to the sum of the present
values of each payment under the lease for
the asset;
(2) Is calculated at the time the QOF
enters into the lease for the asset; and
(3) Once calculated, is used as the val-
ue for the asset by the QOF for all testing
dates for purposes of the 90-percent asset
test.
(D) Term of a lease. For purposes of
paragraph (b)(3)(iii) of this section, the
term of a lease includes periods during
which the lessee may extend the lease at a
pre-defined rent.
(4) Option to disregard recently con-
tributed property. A QOF may choose to
determine compliance with the 90-percent
asset test by excluding from both the nu-
merator and denominator of the test any
property that satisfies all the criteria in
paragraphs (b)(4)(i) through (iii) of this
section. A QOF need not be consistent
from one semi-annual test to another in
whether it avails itself of this option.
(i) As the case may be, the amount of
the property was received by the QOF
partnership as a contribution or by the
QOF corporation solely in exchange for
stock of the corporation;
(ii) This contribution or exchange oc-
curred not more than 6 months before the
test from which it is being excluded; and
(iii) Between the date of that contribu-
tion or exchange and the date of the asset
test, the amount was held continuously
in cash, cash equivalents, or debt instru-
ments with a term of 18 months or less.
(c) * * *
(4) Qualified opportunity zone busi-
ness property of a QOF—(i) In general.
Tangible property used in a trade or busi-
ness of a QOF is qualified opportunity
zone business property for purposes of
paragraph (c)(1)(iii) of this section if the
requirements of paragraphs (c)(4)(i)(A)
through (E) of this section, as applicable,
are satisfied.
(A) In the case of property that the
QOF owns, the property was acquired
by the QOF after December 31, 2017, by
purchase as defined by section 179(d)(2)
from a person that is not a related person
within the meaning of section 1400Z-2(e)
(2).
(B) In the case of property that the
QOF leases—
(1) Qualifying acquisition of posses-
sion. The property was acquired by the
QOF under a lease entered into after De-
cember 31, 2017;
(2) Arms-length terms. The terms of the
lease were market rate (that is, the terms
of the lease reflect common, arms-length
market practice in the locale that includes
the qualified opportunity zone as deter-
mined under section 482 and all section
482 regulations in this chapter) at the time
that the lease was entered into; and
(3) Additional requirements for leases
from a related person. If the lessee and the
lessor are related parties, paragraph (c)(4)
(i)(B)(4) and (5) of this section must be
satisfied.
(4) Prepayments of not more than one
year. The lessee at no time makes any
prepayment in connection with the lease
relating to a period of use of the property
that exceeds 12 months.
(5) Purchase of other QOZBP. If the
original use of leased tangible personal
property in a qualified opportunity zone
(within the meaning of in paragraph (c)
(4)(i)(B)(6) of this section) does not com-
mence with the lessee, the property is not
qualified opportunity zone business prop-
erty unless, during the relevant testing pe-
riod (as defined in paragraph (c)(4)(i)(B)
(7) of this section), the lessee becomes the
owner of tangible property that is qualified
opportunity zone business property hav-
ing a value not less than the value of that
leased tangible personal property. There
must be substantial overlap of the zone(s)
in which the owner of the property so ac-
quired uses it and the zone(s) in which that
person uses the leased property.
(6) Original use of leased tangible
property. For purposes of paragraph (c)
(4)(i)(B)(5) of this section, the original
use of leased tangible property in a qual-
ified opportunity zone commences on the
date any person first places the property in
service in the qualified opportunity zone
for purposes of depreciation (or first uses
it in a manner that would allow depreci-
ation or amortization if that person were
the property’s owner). For purposes of this
paragraph (c)(4)(i)(B)(6), if property has
been unused or vacant for an uninterrupt-
ed period of at least 5 years, original use
in the zone commences on the date after
that period when any person first uses or
places the property in service in the quali-
fied opportunity zone within the meaning
of the preceding sentence. Used tangible
property satisfies the original use require-
ment if the property has not been previ-
ously so used or placed in service in the
qualified opportunity zone.
(7) Relevant testing period. For pur-
poses of paragraph (c)(4)(i)(B)(5) of this
section, the relevant testing period is the
period that begins on the date that the les-
see receives possession under the lease of
the leased tangible personal property and
ends on the earlier of—the date 30-months
after the date the lessee receives posses-
sion of the property under the lease; or the
last day of the term of the lease (within
the meaning of paragraph (b)(3)(iii)(D) of
this section.
(8) Valuation of owned or leased prop-
erty. For purposes of paragraph (c)(4)(i)
(B)(5) of this section, the value of owned
or leased property is required to be deter-
mined in accordance with the valuation
methodologies provided in paragraph (b)
of this section, and such value in the case
of leased tangible personal property is to
be determined on the date the lessee re-

Bulletin No. 2019–21 1233 May 20, 2019
ceives possession of the property under
the lease.
(C) In the case of tangible property
owned by the QOF, the original use of the
owned tangible property in the qualified
opportunity zone, within the meaning of
paragraph (c)(7) of this section, commenc-
es with the QOF, or the QOF substantial-
ly improves the owned tangible property
within the meaning of paragraph (c)(8) of
this section (which defines substantial im-
provement in this context).
(D) In the case of tangible property that
is owned or leased by the QOF, during
substantially all of the QOF’s holding pe-
riod for the tangible property, substantial-
ly all of the use of the tangible property
was in a qualified opportunity zone.
(E) In the case of real property (other
than unimproved land) that is leased by
a QOF, if, at the time the lease is entered
into, there was a plan, intent, or expecta-
tion for the real property to be purchased
by the QOF for an amount of consider-
ation other than the fair market value of
the real property determined at the time of
the purchase without regard to any prior
lease payments, the leased real property
is not qualified opportunity zone business
property at any time.
(ii) Trade or business of a QOF. The
term trade or business means a trade or
business within the meaning of section
162.
(iii) Safe harbor for inventory in tran-
sit. In determining whether tangible prop-
erty is used in a qualified opportunity zone
for purposes of section 1400Z-2(d)(2)(D)
(i)(III), and of paragraphs (c)(4)(i)(D), (c)
(6), (d)(2)(i)(D), and (d)(2)(iv) of this sec-
tion, inventory (including raw materials)
of a trade or business does not fail to be
used in a qualified opportunity zone solely
because the inventory is in transit—
(A) From a vendor to a facility of the
trade or business that is in a qualified op-
portunity zone; or
(B) From a facility of the trade or busi-
ness that is in a qualified opportunity zone
to customers of the trade or business that
are not located in a qualified opportunity
zone.
(5) Substantially all of a QOF’s hold-
ing period for property described in para-
graphs (c)(2) and (3) and (c)(4)(i)(D) of
this section. For purposes of determining
whether the holding period requirements
in paragraphs (c)(2) and (3) and (c)(4)(i)
(D) of this section are satisfied, the term
substantially all means at least 90 percent.
(6) Substantially all of the usage of
tangible property by a QOF in a qualified
opportunity zone. A trade or business of an
entity is treated as satisfying the substan-
tially all requirement of paragraph (c)(4)
(i)(D) of this section if at least 70 percent
of the use of the tangible property is in a
qualified opportunity zone.
(7) Original use of tangible property
acquired by purchase—(i) In general. For
purposes of paragraph (c)(4)(i)(C) of this
section, the original use of tangible prop-
erty in a qualified opportunity zone com-
mences on the date any person first places
the property in service in the qualified op-
portunity zone for purposes of deprecia-
tion or amortization (or first uses it in a
manner that would allow depreciation or
amortization if that person were the prop-
erty’s owner). For purposes of this para-
graph (c)(7), if property has been unused
or vacant for an uninterrupted period of at
least 5 years, original use in the qualified
opportunity zone commences on the date
after that period when any person first so
uses or places the property in service in
the qualified opportunity zone. Used tan-
gible property satisfies the original use re-
quirement if the property has not been pre-
viously so used or placed in service in the
qualified opportunity zone. If the tangible
property had been so used or placed in ser-
vice in the qualified opportunity zone be-
fore it is acquired by purchase, it must be
substantially improved in order to satisfy
the requirements of section 1400Z-2(d)(2)
(D)(i)(II).
(ii) Lessee improvements to leased
property. Improvements made by a les-
see to leased property satisfy the original
use requirement in section 1400Z-2(d)(2)
(D)(i)(II) as purchased property for the
amount of the unadjusted cost basis under
section 1012 of such improvements.
(8) Substantial improvement of tangi-
ble property acquired by purchase— * * *
(ii) * * *
(B) Unimproved land. Unimproved
land that is within a qualified opportuni-
ty zone and acquired by purchase in ac-
cordance with section 1400Z-2(d)(2)(D)
(i)(I) is not required to be substantially
improved within the meaning of sec-
tion 1400Z-2(d)(2)(D)(i)(II) and (d)(2)(D)
(ii).
(9) Substantially all of tangible prop-
erty owned or leased by a QOF—(i) Tan-
gible property owned by a QOF. Whether
a QOF has satisfied the “substantially all”
threshold set forth in paragraph (c)(6) of
this section is to be determined by a frac-
tion—
(A) The numerator of which is the to-
tal value of all qualified opportunity zone
business property owned or leased by the
QOF that meets the requirements in para-
graph (c)(4)(i) of this section; and
(B) The denominator of which is the
total value of all tangible property owned
or leased by the QOF, whether located in-
side or outside of a qualified opportunity
zone.
(d) * * *
(2) * * *
(i) * * *
(A) In the case of tangible property that
the entity owns, the tangible property was
acquired by the entity after December 31,
2017, by purchase as defined by section
179(d)(2) from a person who is not a re-
lated person within the meaning of section
1400Z-2(e)(2).
(B) In the case of tangible property that
the entity leases—
(1) Qualifying acquisition of posses-
sion. The property was acquired by the
entity under a lease entered into after De-
cember 31, 2017;
(2) Arms-length terms. The terms of
the lease are market rate (that is, the terms
of the lease reflect common, arms-length
market practice in the locale that includes
the qualified opportunity zone as deter-
mined under section 482 and all section
482 regulations in this chapter) at the time
that the lease was entered into; and
(3) Additional requirements for leases
from a related person. If the lessee and the
lessor are related parties, paragraphs (d)
(2)(i)(B)(4) and (5) of this section must be
satisfied.
(4) Prepayments of not more than one
year. The lessee at no time makes any
prepayment in connection with the lease
relating to a period of use of the property
that exceeds 12 months.
(5) Purchase of other QOZBP. If the
original use of leased tangible personal
property in a qualified opportunity zone
(within the meaning of in paragraph (d)

May 20, 2019 1234 Bulletin No. 2019–21
(2)(i)(B)(6) of this section) does not com-
mence with the lessee, the property is not
qualified opportunity zone business prop-
erty unless, during the relevant testing pe-
riod (as defined in paragraph (d)(2)(i)(B)
(7) of this section), the lessee becomes the
owner of tangible property that is qualified
opportunity zone business property hav-
ing a value not less than the value of that
leased tangible personal property. There
must be substantial overlap of the zone(s)
in which the owner of the property so ac-
quired uses it and the zone(s) in which that
person uses the leased property.
(6) Original use of leased tangible
property. For purposes of paragraph (d)(2)
(i)(B)(5) of this section, the original use
of leased tangible property in a qualified
opportunity zone commences on the date
any person first places the property in ser-
vice in the qualified opportunity zone for
purposes of depreciation (or first uses it in
a manner that would allow depreciation or
amortization if that person were the prop-
erty’s owner). For purposes of this para-
graph (d)(2)(i)(B)(6), if property has been
unused or vacant for an uninterrupted pe-
riod of at least 5 years, original use in the
qualified opportunity zone commences on
the date after that period when any person
first uses or places the property in service
in the qualified opportunity zone within
the meaning of the preceding sentence.
Used tangible property satisfies the orig-
inal use requirement if the property has
not been previously so used or placed in
service in the qualified opportunity zone.
(7) Relevant testing period. For pur-
poses of paragraph (d)(2)(i)(B)(5) of this
section, the relevant testing period is the
period that begins on the date that the les-
see receives possession under the lease of
the leased tangible personal property and
ends on the earlier of—the date 30-months
after the date the lessee receives posses-
sion of the property under the lease; or the
last day of the term of the lease (within
the meaning of paragraph (b)(3)(iii)(D) of
this section).
(8) Valuation of owned or leased prop-
erty. For purposes of paragraph (d)(2)(i)
(B)(5) of this section, the value of owned
or leased property is required to be deter-
mined in accordance with the valuation
methodologies provided in paragraph (b)
of this section, and such value in the case
of leased tangible personal property is to
be determined on the date the lessee re-
ceives possession of the property under
the lease.
(C) In the case of tangible property
owned by the entity, the original use of
the owned tangible property in the qual-
ified opportunity zone, within the mean-
ing of paragraph (c)(7) of this section,
commences with the entity, or the entity
substantially improves the owned tangible
property within the meaning of paragraph
(d)(4) of this section (which defines sub-
stantial improvement in this context).
(D) In the case of tangible property that
is owned or leased by the entity, during
substantially all of the entity’s holding pe-
riod for the tangible property, substantial-
ly all of the use of the tangible property
was in a qualified opportunity zone.
(E) In the case of real property (oth-
er than unimproved land) that is leased
by the entity, if, at the time the lease is
entered into, there was a plan, intent, or
expectation for the real property to be
purchased by the entity for an amount of
consideration other than the fair market
value of the real property determined at
the time of the purchase without regard to
any prior lease payments, the leased real
property is not qualified opportunity zone
business property at any time.
(ii) Trade or business of an entity. The
term trade or business means a trade or
business within the meaning of section
162.
(iii) Substantially all of a qualified op-
portunity zone business’s holding period
for property described in paragraph (d)
(2)(i)(D) of this section. For purposes of
the holding period requirement in para-
graph (d)(2)(i)(D) of this section, the term
substantially all means at least 90 percent.
(iv) Substantially all of the use of tan-
gible property by a qualified opportunity
zone business in a qualified opportunity
zone. The substantially all of the use re-
quirement of paragraph (d)(2)(i)(D) of
this section is satisfied if at least 70 per-
cent of the use of the tangible property is
in a qualified opportunity zone.
(3) * * *
(ii) * * * (A) In general. Whether a
trade or business of the entity satisfies
the 70-percent “substantially all” thresh-
old set forth in paragraph (d)(3)(i) of this
section is to be determined by a fraction—
(1) The numerator of which is the to-
tal value of all qualified opportunity zone
business property owned or leased by the
qualified opportunity zone business that
meets the requirements in paragraph (d)
(2)(i) of this section; and
(2) The denominator of which is the to-
tal value of all tangible property owned or
leased by the qualified opportunity zone
business, whether located inside or out-
side of a qualified opportunity zone.
(B) Value of tangible property owned
or leased by a qualified opportunity zone
business—(1) In general. For purposes of
the fraction set forth in paragraph (d)(3)
(ii)(A) of this section, on an annual basis,
the owned or leased tangible property of
a qualified opportunity zone business may
be valued using the applicable financial
statement valuation method set forth in
paragraph (d)(3)(ii)(B)(2) of this section,
if the qualified opportunity zone business
has an applicable financial statement with-
in the meaning of §1.475(a)-4(h), or the
alternative valuation method set forth in
paragraph (d)(3)(ii)(B)(3) of this section.
During each taxable year, the valuation
method selected under this paragraph (d)
(3)(ii)(B)(1) must be applied consistently
to all tangible property valued with re-
spect to the taxable year.
(2) Applicable financial statement val-
uation method—(i) In general. Under the
applicable financial statement valuation
method set forth in this paragraph (d)(3)
(ii)(B)(2), the value of tangible property
of the qualified opportunity zone business,
whether owned or leased, is the value of
that property as reported, or as otherwise
would be reported, on the qualified oppor-
tunity zone business’s applicable financial
statement for the relevant reporting peri-
od.
(ii) Requirement for selection of meth-
od. A qualified opportunity zone business
may select the applicable financial state-
ment valuation method set forth in this
paragraph (d)(3)(ii)(B)(2) to value tangi-
ble property leased by the qualified oppor-
tunity zone business only if the applicable
financial statement of the qualified oppor-
tunity zone business requires, or would
otherwise require, an assignment of value
to the lease of the tangible property.
(3) Alternative valuation method—(i)
In general. Under the alternative valuation
method set forth in this paragraph (d)(3)

Bulletin No. 2019–21 1235 May 20, 2019
(ii)(B)(3), the value of tangible property
that is owned by the qualified opportunity
zone business is calculated under para-
graph (d)(3)(ii)(B)(3)(ii) of this section,
and the value of tangible property that is
leased by the qualified opportunity zone
business is calculated under paragraph (d)
(3)(ii)(B)(4) of this section.
(ii) Tangible property owned by a qual-
ified opportunity zone business. The value
of tangible property that is owned by the
qualified opportunity zone business is the
unadjusted cost basis of the property un-
der section 1012 in the hands of the qual-
ified opportunity zone business for each
testing date of a QOF during the year.
(4) Tangible property leased by a qual-
ified opportunity zone business—(i) In
general. For purposes of paragraph (d)(3)
(ii)(B)(3) of this section, the value of tan-
gible property that is leased by the qual-
ified opportunity zone business is equal
to the present value of the leased tangible
property as defined in paragraph (d)(3)(ii)
(B)(5) of this section.
(ii) Discount rate. For purposes of cal-
culating present value under paragraph (d)
(3)(ii)(B)(4) of this section, the discount
rate is the applicable Federal rate under
section 1274(d)(1), determined by sub-
stituting the term “lease” for “debt instru-
ment.”
(5) Present value. For purposes of
paragraph (d)(3)(ii)(B)(4), present value
of leased tangible property
(i) Is equal to the sum of the present
values of each payment under the lease for
such tangible property;
(ii) Is calculated at the time the quali-
fied opportunity zone business enters into
the lease for such leased tangible proper-
ty; and
(iii) Once calculated, is used as the val-
ue for such asset by the qualified opportu-
nity zone business for all testing dates for
purposes of the 90-percent asset test.
(6) Term of a lease. For purposes of
paragraph (d)(3)(ii)(B)(4) of this section,
the term of a lease includes periods during
which the lessee may extend the lease at a
pre-defined rent.
(C) Five-Percent Zone Taxpayer. If a
taxpayer both holds an equity interest in
the entity and has self-certified as a QOF,
then that taxpayer may value the entity’s
assets using the same methodology under
paragraph (b) of this section that the tax-
payer uses for determining its own compli-
ance with the 90-percent asset requirement
of section 1400Z-2(d)(1) (Compliance
Methodology), provided that no other eq-
uity holder in the entity is a Five-Percent
Zone Taxpayer. If two or more taxpayers
that have self-certified as QOFs hold eq-
uity interests in the entity and at least one
of them is a Five-Percent Zone Taxpayer,
then the values of the entity’s assets may
be calculated using the Compliance Meth-
odology that both is used by a Five-Per-
cent Zone Taxpayer and that produces the
highest percentage of qualified opportuni-
ty zone business property for the entity. A
Five-Percent Zone Taxpayer is a taxpayer
that has self-certified as a QOF and that
holds stock in the entity (if it is a corpora-
tion) representing at least 5 percent in vot-
ing rights and value or holds an interest of
at least 5 percent in the profits and capital
of the entity (if it is a partnership).
* * * * *
(4) * * *
(ii) Special rules for land and improve-
ments on land—(A) Buildings located in
the qualified opportunity zone. If a qual-
ified opportunity zone business purchases
a building located on land wholly within
a QOZ, under section 1400Z–2(d)(2)(D)
(ii) a substantial improvement to the pur-
chased tangible property is measured in
relation to the qualified opportunity zone
business’s additions to the adjusted basis
of the building. Under section 1400Z–2(d),
measuring a substantial improvement to
the building by additions to the qualified
opportunity zone business’s adjusted basis
of the building does not require the qual-
ified opportunity zone business to sepa-
rately substantially improve the land upon
which the building is located.
(B) Unimproved land. Unimproved
land that is within a qualified opportuni-
ty zone and acquired by purchase in ac-
cordance with section 1400Z-2(d)(2)(D)
(i)(I) is not required to be substantially
improved within the meaning of sec-
tion 1400Z-2(d)(2)(D)(i)(II) and (d)(2)(D)
(ii).
(5) Operation of section 1397C re-
quirements adopted by reference—(i) * *
* A trade or business meets the 50-percent
gross income requirement in the preced-
ing sentence if the trade or business satis-
fies any one of the four criteria described
in paragraph (d)(5)(i)(A), (B), (C), or (D)
of this section, or any criteria identified in
published guidance issued by the IRS un-
der §601.601(d)(2) of this chapter.
(A) Services performed in qualified
opportunity zone based on hours. At least
50 percent of the services performed for
the trade or business are performed in the
qualified opportunity zone, determined by
a fraction—
(1) The numerator of which is the total
number of hours performed by employees
and independent contractors, and employ-
ees of independent contractors, for ser-
vices performed in a qualified opportunity
zone during the taxable year; and
(2) The denominator of which is the
total number of hours performed by em-
ployees and independent contractors, and
employees of independent contractors,
for services performed during the taxable
year.
(B) Services performed in qualified
opportunity zone based on amounts paid
for services. At least 50 percent of the ser-
vices performed for the trade or business
are performed in the qualified opportunity
zone, determined by a fraction—
(1) The numerator of which is the to-
tal amount paid by the entity for services
performed in a qualified opportunity zone
during the taxable year, whether by em-
ployees, independent contractors, or em-
ployees of independent contractors; and
(2) The denominator of which is the to-
tal amount paid by the entity for services
performed during the taxable year, wheth-
er by employees, independent contractors,
or employees of independent contractors.
(C) Necessary tangible property and
business functions. The tangible property
of the trade or business located in a qual-
ified opportunity zone and the manage-
ment or operational functions performed
in the qualified opportunity zone are each
necessary for the generation of at least 50
percent of the gross income of the trade or
business.
(D) Facts and circumstances. Based on
all the facts and circumstances, at least 50
percent of the gross income of a qualified
opportunity zone business is derived from
the active conduct of a trade or business in
the qualified opportunity zone.
(E) Examples. The following examples
illustrate the principles of paragraphs (d)
(5)(i)(C) and (D) of this section.

May 20, 2019 1236 Bulletin No. 2019–21
(1) Example 1. A landscaping business has its
headquarters in a qualified opportunity zone, its of-
ficers and employees manage the daily operations of
the business (within and without the qualified oppor-
tunity zone) from its headquarters, and all its equip-
ment and supplies are stored in the headquarters fa-
cilities. The activities occurring and the storage of
equipment and supplies in the qualified opportunity
zone are, taken together, a material factor in the gen-
eration of the income of the business.
(2) Example 2. A trade or business is formed or
organized under the laws of the jurisdiction within
which a qualified opportunity zone is located, and
the business has a PO Box located in the qualified
opportunity zone. The mail received at that PO Box
is fundamental to the income of the trade or busi-
ness, but there is no other basis for concluding that
the income of the trade or business is derived from
activities in the qualified opportunity zone. The mere
location of the PO Box is not a material factor in the
generation of gross income by the trade or business.
(3) Example 3. In 2019, Taxpayer X realized $w
million of capital gains and within the 180-day pe-
riod invested $w million in QOF Y, a qualified op-
portunity fund. QOF Y immediately acquired from
partnership P a partnership interest in P, solely in
exchange for $w million of cash. P is a real estate
developer that has written plans to acquire land in a
qualified opportunity zone on which it plans to con-
struct a commercial building for lease to other trades
or businesses. In 2023, P’s commercial building is
placed in service and is fully leased up to other trades
or businesses. For the 2023 taxable year, because at
least 50 percent of P’s gross income is derived from
P’s rental of its tangible property in the qualified
opportunity zone. Thus, under P’s facts and circum-
stances, P satisfies the gross income test under sec-
tion 1397C(b)(2).
(ii) Use of intangible property require-
ment—(A) * * * For purposes of section
1400Z-2(d)(3)(ii) and the preceding sen-
tence, the term substantial portion means
at least 40 percent.
(B) Active conduct of a trade or busi-
ness—(1) [Reserved]
(2) Operating real property. Solely
for the purposes of section 1400Z-2(d)(3)
(A), the ownership and operation (includ-
ing leasing) of real property is the active
conduct of a trade or business. Howev-
er, merely entering into a triple-net-lease
with respect to real property owned by
a taxpayer is not the active conduct of a
trade or business by such taxpayer.
(3) Trade or business defined. The term
trade or business means a trade or busi-
ness within the meaning of section 162.
* * * * *
(iv) Safe harbor for reasonable amount
of working capital. Solely for purposes
of applying section 1397C(e)(1) to the
definition of a qualified opportunity zone
business under section 1400Z–2(d)(3),
working capital assets are treated as rea-
sonable in amount for purposes of sections
1397C(b)(2) and 1400Z–2(d)(3)(A)(ii), if
all of the requirements in paragraphs (d)
(5)(iv)(A) through (C) of this section are
satisfied.
(A) Designated in writing. These
amounts are designated in writing for the
development of a trade or business in a
qualified opportunity zone (as defined in
section 1400Z–1(a)), including when ap-
propriate the acquisition, construction,
and/or substantial improvement of tangi-
ble property in such a zone.
* * * * *
(C) Property consumption consistent.
The working capital assets are actually
used in a manner that is substantially con-
sistent with paragraphs (d)(5)(iv)(A) and
(B) of this section. If consumption of the
working capital assets is delayed by wait-
ing for governmental action the applica-
tion for which is complete, that delay does
not cause a failure of this paragraph (d)(5)
(iv)(C).
(D) Ability of a single business to ben-
efit from more than a single application of
the safe harbor. A business may benefit
from multiple overlapping or sequential
applications of the working capital safe
harbor, provided that each application
independently satisfies all of the require-
ments in paragraphs (d)(5)(iv)(A) through
(C) of this section.
(E) Examples. The following examples
illustrate the rules of paragraph (d)(5)(iv)
of this section.
(1) Example 1: General application of working
capital safe harbor—(i) Facts. QOF F creates a
business entity E to open a fast-food restaurant and
acquires almost all of the equity of E in exchange for
cash. E has a written plan and a 20-month schedule
for the use of this cash to establish the restaurant.
Among the planned uses for the cash are identifica-
tion of favorable locations in the qualified oppor-
tunity zone, leasing a building suitable for such a
restaurant, outfitting the building with appropriate
equipment and furniture (both owned and leased),
necessary security deposits, obtaining a franchise
and local permits, and the hiring and training of
kitchen and wait staff. Not-yet-disbursed amounts
were held in assets described in section 1397C(e)(1),
and these assets were eventually expended in a man-
ner consistent with the plan and schedule.
(ii) Analysis. E’s use of the cash qualifies for
the working capital safe harbor described in para-
graph (d)(5)(iv) of this section.
(2) Example 2: Multiple applications of work-
ing capital safe harbor—(i) Facts. QOF G creates a
business entity H to start a new technology compa-
ny and acquires equity of H in exchange for cash on
Date 1. In addition to H’s rapid deployment of capital
received from other equity investors, H writes a plan
with a 30-month schedule for the use of the Date 1
cash. The plan describes use of the cash to research
and develop a new technology (Technology), includ-
ing paying salaries for engineers and other scientists
to conduct the research, purchasing, and leasing
equipment to be used in research and furnishing of-
fice and laboratory space. Approximately a year-and-
a-half after Date 1, on Date 2, G acquires additional
equity in H for cash, and H writes a second plan.
This new plan has a 25-month schedule for the de-
velopment of a new application of existing software
(Application), to be marketed to government agen-
cies. Among the planned uses for the cash received
on Date 2 are paying development costs, including
salaries for software engineers, other employees,
and third-party consultants to assist in developing
and marketing the new application to the anticipat-
ed customers. Not-yet-disbursed amounts that were
scheduled for development of the Technology and
the Application were held in assets described in sec-
tion 1397C(e)(1), and these assets were eventually
expended in a manner substantially consistent with
the plans and schedules for both the Technology and
the Application.
(ii) Analysis. H’s use of both the cash received
on Date 1 and the cash received on Date 2 qualifies
for the working capital safe harbor described in para-
graph (d)(5)(iv) of this section.
* * * * *
(viii) Real property straddling a qual-
ified opportunity zone. For purposes of
satisfying the requirements in this para-
graph (d)(5), when it is necessary to deter-
mine whether a qualified opportunity zone
is the location of services, tangible proper-
ty, or business functions, section 1397C(f)
applies (substituting “qualified opportuni-
ty zone” for “empowerment zone”). If the
amount of real property based on square
footage located within the qualified op-
portunity zone is substantial as compared
to the amount of real property based on
square footage outside of the qualified op-
portunity zone, and the real property out-
side of the qualified opportunity zone is
contiguous to part or all of the real proper-
ty located inside the qualified opportunity
zone, then all of the property is deemed to
be located within a qualified opportunity
zone.
* * * * *
(f) *** Notwithstanding the preceding
sentence, a QOF may not rely on the pro-
posed rules in paragraphs (c)(8)(ii)(B) and
(d)(4)(ii)(B) of this section (which con-
cern the qualification of land as QOZBP)
if the land is unimproved or minimal-
ly improved and the QOF or the QOZB
purchases the land with an expectation,
an intention, or a view not to improve the

Bulletin No. 2019–21 1237 May 20, 2019
land by more than an insubstantial amount
within 30 months after the date of pur-
chase.
Par. 6. Section 1.1400Z2(f)-1 is added to
read as follows:
§1.1400Z2(f)-1 Failure of qualified
opportunity fund to maintain investment
standard.
(a) In general. Except as provided by
§1.1400Z2(d)-1(a)(2)(ii) with respect to a
taxpayer’s first taxable year as a QOF, if
a QOF fails to satisfy the 90-percent as-
set test in section 1400Z-2(d)(1), then the
fund must pay the statutory penalty set
forth in section 1400Z-2(f) for each month
it fails meet the 90-percent asset test.
(b) Time period for a QOF to reinvest
certain proceeds. If a QOF receives pro-
ceeds from the return of capital or the sale
or disposition of some or all of its quali-
fied opportunity zone property within the
meaning of section 1400Z-2(d)(2)(A), and
if the QOF reinvests some or all of the pro-
ceeds in qualified opportunity zone prop-
erty by the last day of the 12-month period
beginning on the date of the distribution,
sale, or disposition, then the proceeds, to
the extent that they are so reinvested, are
treated as qualified opportunity zone prop-
erty for purposes of the 90-percent asset
test in section 1400Z-2(d)(1), but only to
the extent that prior to the reinvestment in
qualified opportunity zone property the
proceeds are continuously held in cash,
cash equivalents, or debt instruments with
a term of 18 months or less. If reinvest-
ment of the proceeds is delayed by waiting
for governmental action the application
for which is complete, that delay does not
cause a failure of the 12-month require-
ment in this paragraph (b).
(c) Anti-abuse rule—(1) In gener-
al. Pursuant to section 1400Z-2(e)(4)
(C), the rules of section 1400Z-2 and
§§1.1400Z2(a)-1 through 1.1400Z2(g)-1
must be applied in a manner consistent
with the purposes of section 1400Z-2.
Accordingly, if a significant purpose of a
transaction is to achieve a tax result that is
inconsistent with the purposes of section
1400Z-2, the Commissioner can recast a
transaction (or series of transactions) for
Federal tax purposes as appropriate to
achieve tax results that are consistent with
the purposes of section 1400Z-2. Whether
a tax result is inconsistent with the purpos-
es of section 1400Z-2 must be determined
based on all the facts and circumstances.
(2) [Reserved]
(d) Applicability date. This section ap-
plies to taxable years of a QOF that end
on or after the date of publication in the
Federal Register of a Treasury decision
adopting these proposed rules as final reg-
ulations. However, an eligible taxpayer
may rely on the proposed rules in this sec-
tion (other than paragraph (c) of this sec-
tion) with respect to taxable years before
the date of applicability of this section,
but only if the eligible taxpayer applies
the rules in their entirety and in a consis-
tent manner. An eligible taxpayer may rely
on the proposed rules in paragraph (c) of
this section with respect to taxable years
before the date of applicability of this
section, but only if the eligible taxpayer
applies the rules of section 1400Z-2 and
§§1.1400Z2(a)-1 through 1.1400Z2(g)-
1, as applicable, in their entirety and in a
consistent manner.
Par. 7. Section 1.1400Z2(g)-1 is added to
read as follows:
§1.1400Z2(g)-1 Application of oppor-
tunity zone rules to members of a consol-
idated group.
(a) Scope and definitions—(1) Scope.
This section provides rules regarding the
Federal income tax treatment of QOFs
owned by members of consolidated
groups.
(2) Definitions. The definitions provid-
ed in §1.1400Z2(b)-1(a)(2) apply for pur-
poses of this section.
(b) QOF stock not stock for purposes
of affiliation—(1) In general. Stock in a
QOF corporation (whether qualifying
QOF stock or otherwise) is not treated as
stock for purposes of determining wheth-
er the issuer is a member of an affiliated
group within the meaning of section 1504.
Therefore, a QOF corporation can be the
common parent of a consolidated group,
but a QOF corporation cannot be a subsid-
iary member of a consolidated group.
(2) Example. The following example
illustrates the rules of this paragraph (b).
(i) Facts. Corporation P wholly owns
corporation S, which wholly owns cor-
poration Q. P, S, and Q are members of
a U.S. consolidated group (P group). In
2018, S sells an asset to an unrelated party
and realizes $500 of capital gain. S con-
tributes $500 to Q and properly elects to
defer recognition of the gain under section
1400Z-2. At such time, Q qualifies and
elects to be treated as a QOF.
(ii) Analysis. Under paragraph (b) of
this section, stock of a QOF (qualifying
or otherwise) is not treated as stock for
purposes of affiliation under section 1504.
Thus, once Q becomes a QOF, Q ceases to
be affiliated with the P group members un-
der section 1504(a), and it deconsolidates
from the P group.
(c) Qualifying investments by mem-
bers of a consolidated group. Except as
otherwise provided in this section or in
§1.1400Z2(b)-1, section 1400Z-2 applies
separately to each member of a consoli-
dated group. Therefore, for example, the
same member of the group must both en-
gage in the sale of a capital asset giving
rise to gain and timely invest an amount
equal to some or all of such gain in a QOF
(as provided in section 1400Z-2(a)(1)) in
order to qualify for deferral of such gain
under section 1400Z-2.
(d) Tiering up of investment adjust-
ments provided by section 1400Z-2. Basis
increases in a qualifying investment in a
QOF under sections 1400Z-2(b)(2)(B)(iii),
1400Z-2(b)(2)(B)(iv), and 1400Z-2(c) are
treated as satisfying the requirements of
§1.1502-32(b)(3)(ii)(A), and thus qualify
as tax-exempt income to the QOF owner.
Therefore, if the QOF owner is a member
of a consolidated group and is owned by
other members of the same group (up-
per-tier members), the group members
increase their bases in the shares of the
QOF owner under §1.1502-32(b)(2)(ii).
However, there is no basis increase under
§1.1502-32(b)(2)(ii) in shares of upper-ti-
er members with regard to basis increases
under section 1400Z-2(c) and the regula-
tions at § 1.1400Z2(c)-1 unless and until
the basis of the qualifying investment is
increased to its fair market value, as pro-
vided in section 1400Z-2(c) and the regu-
lations at § 1.1400Z2(c)-1.
(e) Application of §1.1502-36(d). This
paragraph (e) clarifies how §1.1502-36(d)
applies if a member (M) transfers a loss
share of another member (S) and S is a
QOF owner that owns a qualifying invest-
ment in a QOF. To determine S’s attribute
reduction amount under §1.1502-36(d)(3),

May 20, 2019 1238 Bulletin No. 2019–21
S’s basis in its qualifying investment is in-
cluded in S’s net inside attribute amount
to compute S’s aggregate inside loss under
§1.1502-36(d)(3)(iii)(A). However, S’s
basis in the qualifying investment is not
included in S’s category D attributes avail-
able for attribute reduction under §1.1502-
36(d)(4). Thus, S’s basis in the qualify-
ing investment cannot be reduced under
§1.1502-36(d). If S’s attribute reduction
amount exceeds S’s attributes available
for reduction, then to the extent of S’s
basis in the qualifying investment (lim-
ited by the remaining attribute reduction
amount), the common parent is treated as
making the election under §1.1502-36(d)
(6) to reduce M’s basis in the transferred
loss S shares.
(f) Examples. The following examples
illustrate the rules of this section.
(1) Example 1: Basis adjustment when member
owns qualifying QOF stock—(i) Facts. Corporation
P is the common parent of a consolidated group (P
group), and P wholly owns Corporation S, a member
of the P group. In 2018, S sells an asset to an unre-
lated party and realizes $500 of capital gain. S con-
tributes $500 to Q (a QOF corporation) and properly
elects to defer the gain under section 1400Z-2(a) and
§1.1400Z2(a)-1. S does not otherwise own stock in
Q. In 2029, when S still owns its qualifying invest-
ment in Q, P sells all of the stock of S to an unrelated
party.
(ii) Analysis—(A) 5-year and 7-year basis in-
crease and §1.1502-32 tier-up. In 2023, when S
has held the stock of Q for five years, under section
1400Z-2(b)(2)(B)(iii), S increases its basis in its Q
stock by $50 (10 percent of $500, the amount of gain
deferred by reason of section 1400Z-2(a)(1)(A)).
The 10-percent basis increase qualifies as tax-ex-
empt income to S under paragraph (d) of this section.
Thus, P (an upper-tier member) increases its basis in
S’s stock by $50 under §1.1502-32(b)(2)(ii). Simi-
larly, in 2025, when S has held the stock of Q for
seven years, under section 1400Z-2(b)(2)(B)(iv), S
increases its basis in its Q stock by an additional $25
(5 percent of $500). The 5 percent basis increase also
qualifies as tax-exempt income to S under paragraph
(d) of this section, and P increases its basis in S’s
stock by an additional $25 under §1.1502-32(b)(2)
(ii).
(B) S’s recognition of deferred capital gain in
2026. S did not dispose of its Q stock prior to Decem-
ber 31, 2026. Therefore, under section 1400Z-2(b)
(1)(B) and §1.1400Z2(b)-1(b)(2), S’s deferred cap-
ital gain is included in S’s income on December 31,
2026. The amount of gain included under section
1400Z-2(b)(2)(A) is $425 ($500 of deferred gain
less S’s $75 basis in Q). S’s basis in Q is increased
by $425 to $500, and P’s basis in S also is increased
by $425.
(C) P’s disposition of S. P’s sale of S stock in
2029 results in the deconsolidation of S. Q remains a
non-consolidated subsidiary of S, and S is not treated
as selling or exchanging its Q stock for purposes of
section 1400Z-2(c). Therefore, no basis adjustments
under section 1400Z-2 are made as a result of P’s
sale of S stock.
(iii) S sells the stock of Q after 10 years. The
facts are the same as in this Example 1 in paragraph
(f)(1)(i) of this section, except that in 2029, instead
of P selling all of the stock of S, S sells all of the
stock of Q to an unrelated party for its fair market
value of $800. At the time of the sale, S has owned
the Q stock for over 10 years, and S elects under
section 1400Z-2(c) to increase its stock basis in Q
from $500 (see the analysis in this Example 1 in
paragraph (f)(1)(ii)(B) of this section) to the fair
market value of Q on the date of the sale, $800. As
a result of the election, S’s basis in Q is $800 and S
has no gain on the sale of Q stock. Additionally, the
$300 basis increase in Q is treated as tax-exempt in-
come to S pursuant to paragraph (d) of this section.
Thus, P increases its basis in P’s S stock by $300
under §1.1502-32(b)(2)(ii).
(2) Example 2: Computation and application of
the attribute reduction amount under §1.1502-36(d)
when S owns a QOF—(i) Facts. Corporation P (the
common parent of a consolidated group) wholly
owns corporation M, which wholly owns corpora-
tion S, which wholly owns Q (a QOF corporation).
In 2018, S sells an asset to an unrelated party and
realizes $5,000 of capital gain. S contributes $5,000
to Q and properly elects to defer the gain under sec-
tion 1400Z-2. In 2024, M sells all of its S stock to
an unrelated party for fair market value of $100, and
M’s basis in the stock of S is $300. At the time of
sale, S owns the stock of Q with a basis of $500 (S’s
basis in Q was increased under section 1400Z-2(b)
(2)(B)(iii) to $500 in 2023), and S has a net oper-
ating loss carryover of $50. M’s transfer of the S
shares is a transfer of loss shares under §1.1502-36.
Assume that no basis redetermination is required un-
der §1.1502-36(b) and no basis reduction is required
under §1.1502-36(c).
(ii) Attribute reduction under §1.1502-36(d).
Under §1.1502-36(d), S’s attributes are reduced by
S’s attribute reduction amount. Section 1.1502-36(d)
(3) provides that S’s attribute reduction amount is
the lesser of the net stock loss and S’s aggregate
inside loss. The net stock loss is the excess of the
$300 aggregate basis of the transferred S shares over
the $100 aggregate value of those shares, or $200.
S’s aggregate inside loss, which includes the basis
of the stock of Q as provided by paragraph (e) of
this section, is the excess of S’s net inside attribute
amount over the value of the S share. S’s net inside
attribute amount is $550, computed as the sum of
S’s $50 loss carryover and its $500 basis in Q. S’s
aggregate inside loss is therefore $450 ($550 net in-
side attribute amount over the $100 value of the S
share). Accordingly, S’s attribute reduction amount
is the lesser of the $200 net stock loss and the $450
aggregate inside loss, or $200. Under §1.1502-36(d)
(4), S’s $200 attribute reduction is first allocated and
applied to reduce S’s $50 loss carryover to $0. Under
§1.1502-36(d)(4)(i)(D), S generally would be able to
reduce the basis of its category D assets (including
stock in other corporations) by the remaining attri-
bute reduction amount ($150). However, paragraph
(e) of this section provides that S’s basis in the QOF
(Q) shares is not included in S’s category D attributes
that are available for reduction under §1.1502-36(d)
(4), and the remaining $150 of attribute reduction
amount cannot be used to reduce the basis of Q
shares under §1.1502-36(d). Rather, under paragraph
(e) of this section, P is treated as making the elec-
tion under §1.1502-36(d)(6) to reduce M’s basis in
the transferred loss S shares by $150. As a result, P’s
basis in its M stock will also be reduced by $150.
(g) Applicability date. Except as other-
wise provided in this paragraph (g), this
section applies for taxable years that begin
on or after the date of publication in the
Federal Register of a Treasury decision
adopting these proposed rules as final reg-
ulations. However, a QOF may rely on the
proposed rules in this section with respect
to taxable years that begin before the ap-
plicability date of this section, but only if
the QOF applies the rules in their entirety
and in a consistent manner.
Kirsten Wielobob,
Deputy Commissioner for Services
and Enforcement.
(Filed by the Office of the Federal Register on April
30, 2019, 8:45 a.m., and published in the issue of the
Federal Register for May 5, 2019, 84 F.R. 18652)

Bulletin No. 2019–21 i May 20, 2019
Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion. It
is not used where a position in a prior rul-
ing is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transactions.
This term is most commonly used in a ruling
that lists previously published rulings that
are obsoleted because of changes in laws or
regulations. A ruling may also be obsoleted
because the substance has been included in
regulations subsequently adopted.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previous-
ly published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cas-
es in litigation, or the outcome of a Ser-
vice study.
Abbreviations
The following abbreviations in current use
and formerly used will appear in material
published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

May 20, 2019 ii Bulletin No. 2019–21
Numerical Finding List
1
Bulletin 2019–17
Action on Decision:
2019-1, 2019-08 I.R.B. 569
Announcements:
2019-1, 2019-06 I.R.B. 566
2019-2, 2019-12 I.R.B. 910
2019-3, 2019-15 I.R.B. 965
2019-4, 2019-21 I.R.B. 1192
Notices:
2019-01, 2019-02 I.R.B. 275
2019-02, 2019-02 I.R.B. 281
2019-03, 2019-03 I.R.B. 350
2019-04, 2019-02 I.R.B. 282
2019-05, 2019-02 I.R.B. 283
2019-06, 2019-03 I.R.B. 353
2019-07, 2019-09 I.R.B. 740
2019-08, 2019-03 I.R.B. 354
2019-09, 2019-04 I.R.B. 403
2019-10, 2019-13 I.R.B. 913
2019-11, 2019-05 I.R.B. 430
2019-13, 2019-08 I.R.B. 580
2019-16, 2019-10 I.R.B. 763
2019-17, 2019-12 I.R.B. 907
2019-18, 2019-13 I.R.B. 915
2019-19, 2019-12 I.R.B. 907
2019-20, 2019-14 I.R.B. 927
2019-21, 2019-14 I.R.B. 927
2019-22, 2019-14 I.R.B. 931
2019-23, 2019-15 I.R.B. 941
2019-24, 2019-14 I.R.B. 932
2019-25, 2019-15 I.R.B. 942
2019-26, 2019-15 I.R.B. 943
2019-28, 2019-18 I.R.B. 1077
2019-30, 2019-20 I.R.B. 1180
2019-31, 2019-20 I.R.B. 1181
2019-32, 2019-21 I.R.B. 1187
Proposed Regulations:
REG-104259-18, 2019-02 I.R.B. 300
REG-104352-18, 2019-03 I.R.B. 357
REG-106089-18, 2019-05 I.R.B. 431
REG-134652-18, 2019-09 I.R.B. 747
REG-141739-08, 2019-09 I.R.B. 757
REG-121694-16, 2019-16 I.R.B. 1032
REG-135671-17, 2019-16 I.R.B. 1035
REG-103083-18, 2019-17 I.R.B. 1046
REG-113943-17, 2019-17 I.R.B. 1067
REG-143686-07, 2019-17 I.R.B. 1072
REG-124627-11, 2019-17 I.R.B. 1073
REG-120186-18, 2019-21 I.R.B. 1193
Revenue Procedures:
2019-1, 2019-01 I.R.B. 1
2019-2, 2019-01 I.R.B. 106
2019-3, 2019-01 I.R.B. 130
2019-4, 2019-01 I.R.B. 146
2019-5, 2019-01 I.R.B. 230
2019-6, 2019-02 I.R.B. 284
2019-7, 2019-01 I.R.B. 268
2019-8, 2019-03 I.R.B. 347
2019-9, 2019-02 I.R.B. 293
2019-10, 2019-02 I.R.B. 296
2019-11, 2019-09 I.R.B. 742
2019-12, 2019-04 I.R.B. 401
2019-13, 2019-09 I.R.B. 744
2019-14, 2019-15 I.R.B. 948
2019-15, 2019-14 I.R.B. 939
2019-17, 2019-17 I.R.B. 1045
2019-18, 2019-18 I.R.B. 1077
2019-20, 2019-20 I.R.B. 1182
2019-21, 2019-21 I.R.B. 1190
Revenue Rulings:
2019-03, 2019-02 I.R.B. 272
2019-04, 2019-07 I.R.B. 567
2019-05, 2019-11 I.R.B. 766
2019-06, 2019-14 I.R.B. 919
2019-07, 2019-10 I.R.B. 761
2019-08, 2019-14 I.R.B. 923
2019-09, 2019-14 I.R.B. 925
2019-10, 2019-16 I.R.B. 1010
2019-11, 2019-17 I.R.B. 1041
2019-13, 2019-20 I.R.B. 1179
Treasury Decisions:
9844, 2019-11 I.R.B. 781
9845, 2019-08 I.R.B. 570
9846, 2019-09 I.R.B. 583
9847, 2019-09 I.R.B. 670
9848, 2019-11 I.R.B. 897
9850, 2019-12 I.R.B. 904
9852, 2019-16 I.R.B. 1010
9853, 2019-16 I.R.B. 1026
9855, 2019-17 I.R.B. 1042
9854, 2019-18 I.R.B. 1075
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.

Bulletin No. 2019–21 iii May 20, 2019
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2019–21
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.

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