Opportunity Zone Fund Regulations – Long-Awaited Guidance Should Help Investors and Sponsors Get Off the Sidelines

by Morgan Lewis
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Morgan Lewis

The US Department of the Treasury and the Internal Revenue Service (IRS) released much-anticipated guidance on October 19 on investments in the new Opportunity Zone Funds. The release included proposed regulations (REG-115430-18) (the Proposed Regulations) and a revenue ruling (Rev. Rul. 2018-29) (the Revenue Ruling). The Proposed Regulations and Revenue Ruling provide much needed guidance to taxpayers, investors, sponsors, and the private equity and real estate industry, all of which have been waiting to see how the IRS would implement this new statutory scheme introduced as part of the 2017 tax reform package. However, a number of open questions remain unanswered by the Proposed Regulations and Revenue Ruling, and further guidance is still needed with respect to several issues.

The rules affect a wide variety of taxpayers and provide significant planning opportunities that need to be immediately considered by any taxpayer looking to defer capital gains. In addition, there should be significant opportunities for investors and sponsors of investment vehicles.

Background

Initially overshadowed by the other sweeping changes to the Code with the enactment of the 2017 Tax Cuts and Jobs Act, new Code[1] Sections 1400Z-1 and 1400Z-2 appear to offer some of the greatest tax incentives in the 2017 tax reform package for investors. These new provisions provide two new tax incentives to encourage investment in roughly 8,700 low-income communities designated as “qualified opportunity zones” (QOZs), although the list of QOZs includes many areas that would not necessarily be considered low-income communities.[2] First, the new program permits taxpayers to defer, and under certain circumstances partially exclude, capital gains (the Deferred Gain) recognized on the sale or exchange of property to an unrelated person, to the extent such Deferred Gain is reinvested in a “qualified opportunity fund” (QOF) within 180 days. Second, the provisions provide for the exclusion of any gain realized from the investment in the QOF (the QOF Gain), provided the investor holds its investment in the QOF for at least 10 years.

Mechanics of the Deferral and Exclusion of Deferred Gain

Eligible taxpayers can elect to defer an unlimited amount of Deferred Gain from the sale or exchange of any property to an unrelated person, provided that such Deferred Gain is invested within 180 days in a QOF.[3] Deferred Gains invested in a QOF are deferred until the earlier of the date on which the taxpayer sells or exchanges its QOF interest, or December 31, 2026. This means that any Deferred Gain must be recognized no later than December 31, 2026, and that the value of such deferral diminishes with time.

While the statute simply provided for “gains” from property to qualify for such deferral, the Proposed Regulations have narrowed the scope of the deferral to “capital” gains as defined under Section 1221 of the Code. Under the Proposed Regulations, the election is available for capital gains recognized on sales or exchanges of property that occur before January 1, 2027. Therefore, for example, a taxpayer can sell a portfolio of stock at a gain and roll such gain into a real estate QOF and be eligible for the tax benefits afforded under these new rules.[4] In order to claim this deferral benefit, a taxpayer need only reinvest an amount reflecting gains from the sale of the property and does not need to reinvest the entire proceeds from the sale of such property giving rise to the gain. In fact, there is no requirement that the full gain realized on the sale of such property be reinvested in a QOF; however, only such portion that is reinvested is eligible for deferral.[5] This means that although QOFs are designed to accommodate capital contributions of Deferred Gain, there is no cap on the amount that a taxpayer can contribute to a QOF or a restriction on who can invest in a QOF.

In addition to the deferral described above, to incentivize long-term investments in QOFs, the provisions provide for a partial exclusion of the Deferred Gain through a step-up in the basis of QOF investments that are held for at least five years. A taxpayer rolling over Deferred Gains into a QOF will have an initial basis in the QOF equal to zero. The statute enables a taxpayer to step-up its basis in the QOF in an amount equal to 10% of the Deferred Gain after five years, and in an amount equal to 15% of the Deferred Gain after seven years. These basis step-ups effectively result in a permanent exclusion of 10% of the Deferred Gain invested in a QOF for investments held at least five years, increasing to 15% for investments held for at least seven years. See the example and table below demonstrating the application of these new rules.

The flexibility that these rules provide allows a taxpayer with phantom gain (i.e., an income inclusion without a corresponding cash receipt) to be eligible to roll any such “gain” treated as capital[6] into a QOF, assuming they otherwise have the cash on hand or can borrow such amounts. Note that taxpayers may have various tools, including the use of financial derivatives, at their disposal to trigger the recognition of unrealized gain without having to fully dispose of their original investment. Although the gain triggered by such transactions is phantom in nature, a taxpayer could borrow against its QOF interest, as discussed below, in order to generate the cash necessary to make the QOF investment.

Observations from the Proposed Regulations

In addition to limiting gain deferral to “capital gains”, the Proposed Regulations also made other significant changes to the rules. For example, they clarify that the only taxpayers eligible for deferral are those that recognize capital gains and that pass-through entities such as partnerships (among other types of entities) are eligible taxpayers for purposes of these rules. In addition, the Proposed Regulations require that an investment in a QOF be an “equity” interest (including preferred stock or a partnership interest with special allocations), thereby excluding debt investments.[7] The Proposed Regulations, however, do not limit a taxpayer’s ability to pledge its equity interest in a QOF as collateral for a loan.

The Proposed Regulations also provide guidance for the reinvestment of gain from the sale or exchange of a QOF into a QOF. The taxpayer in that situation must completely dispose of its interest in the QOF to be able to reinvest such gains while maintaining deferral. The IRS expects to release further guidance with respect to such reinvestments and has requested comments on this 180-day reinvestment rule.

The Proposed Regulations also provide clarification with respect to gains of partnerships and other pass-through entities. Where the partnership makes an election for gain deferral, no part of the deferred gain is required to be included in the distributive shares of the partners or reflected in the partners’ basis in their partnership interests. If a partner in an electing partnership sells its interest prior to the time when the partnership recognizes the Deferred Gain, such partner would recognize its portion of such Deferred Gain at the time of sale. If a partnership does not make the election, a partner therein generally may elect to defer gain, with respect to the portion of such partner’s distributive share which is otherwise eligible to be treated as Deferred Gain (including capital gains not arising from a sale or exchange from a person related to either the partnership or the partner).

However, a partner electing to treat any portion of its distributive share as Deferred Gain would still have the amount of such gain reflected in its outside basis in the partnership. Subject to special rules for alternative situations where the partner knows both the date of the partnership’s gain as well as the partnership’s decision not to elect deferral, the 180-day period generally begins on the last day of the partnership’s taxable year, as that is the day on which the partner would be required to recognize any non-deferred gain. Thus, a taxpayer who is a partner in a partnership may have ample time to prepare and plan for a future QOF investment. The rules described in this paragraph also apply to other pass-through entities, such as S corporations, estates and trusts, and shareholders and beneficiaries therein. From a practical perspective, we would expect that partnership agreements will need to be amended to clarify whether the partnership or the limited partners will be able to make the gain deferral election.

The IRS currently anticipates that the deferral election will be made on Form 8949, which will be attached to the taxpayer’s federal income tax return for the taxable year in which the gain would otherwise have been recognized. Further guidance with respect to this election and the relevant Form Instructions are expected to be released shortly.

The Exclusion of Gain from a QOF

If a taxpayer makes an applicable election, the taxpayer’s basis in its QOF investment is deemed to be its fair market value on the date the investor disposes of its investment. Since QOF investments held for the requisite 10-year period necessarily would be held beyond December 31, 2026, a taxpayer holding such a QOF investment will have already paid tax on its Deferred Gain rolled into the QOF (albeit subject to the 15% reduction discussed above). However, this effectively means that after 10 years of ownership in the QOF, any appreciation the taxpayer recognizes in the QOF is tax-free. Note, investors should be able to recognize losses associated with their investments in a QOF under the general principles of taxation; however, the investor receives the benefit of the basis step-up for calculating their losses if they hold their investment in the QOF for the requisite minimum five or seven years as applicable.

Example

An Investor (X) recently sold stocks and securities, generating a capital gain of $600,000. X invests in 2018 a total of $1 million (60% Deferred Gain and 40% cash) into a QOF within the requisite 180-day period, and the investment appreciates $100,000 each year. The investment should produce the results below if the investor disposed of its QOF investment in any particular year.

Year

Fair Market Value of Investment

Gain Attributable to Deferred Gain

Result if QOF Investment Sold

     

Deferred Gain

QOF Gain

2018

$1M

N/A

N/A

N/A

2019

$1.1M

$60K

$600K of LTCG

$100K of LTCG

2020

$1.2M

$120K

$600K of LTCG

$200K of LTCG

2021

$1.3M

$180K

$600K of LTCG

$300K of LTCG

2022

$1.4M

$240K

$600K of LTCG

$400K of LTCG

2023

$1.5M

$300K

$540K of LTCGa

$500K of LTCG

2024

$1.6M

$360K

$540K of LTCGa

$600K of LTCG

2025

$1.7M

$420K

$510K of LTCGb

$700K of LTCG

2026

$1.8M

$480K

$510K of LTCGb

$800K of LTCG

2027

$1.9M

$540K

$0c

$900K of LTCG

2028

$2M

$600K

$0c

$400K of LTCGd

a Inclusive of 10% reduction on initial $600K of Deferred Gain for satisfying 5-year holding period

b Inclusive of 15% reduction on initial $600K of Deferred Gain for satisfying 7-year holding period

c $510K (85% of the $600K of Deferred Gain) will have been recognized by December 31, 2026

d Reflecting reduction from step-up in basis of QOF to fair market value of the part of the investment reflecting Deferred Gain after 10-year period ($1M - $600K)

 

Observations from the Proposed Regulations

Perhaps one of the most important rules announced by the Proposed Regulations is the confirmation that taxpayers will be given until December 31, 2047, to satisfy the 10-year holding period to step-up their basis in a QOF to exclude QOF Gain. Without this clarification only investors that had made contributions to a QOF in 2018 would have been eligible for the 10-year exclusion on QOF Gain, which would have severely restricted the viability of the program. Although the statute provides that the QOZ designation expires on December 31, 2028, any investor rolling gain into a QOF will now have sufficient time to establish the 10-year holding period with an additional cushion to dispose of their interest in a QOF.

The Proposed Regulations also provide clarity for investors that make both a Deferred Gain capital contribution in a QOF, and a capital contribution that is not tied to a Deferred Gain by explaining that such investments should be treated as separate investments for tax purposes. This means that investors are only eligible for the step-up in basis to the extent the appreciation on a QOF investment is attributable to Deferred Gain. As described in the example, if a taxpayer invests $600,000 of Deferred Gain and $400,000 of other cash in a QOF, and the investor’s interest in such QOF appreciates to $2 million over a 10-year period, the taxpayer would be eligible for tax-free treatment only in respect of $600,000 of the $1 million appreciation.

The Proposed Regulations clarify that the tax attributes of the Deferred Gain are preserved until such time that the Deferred Gain is recognized. For example, the character of gains recognized under Section 1275 (blended 60% long-term/40% short-term) are preserved until such Deferred Gains are eventually recognized. The Proposed Regulations also mandate the FIFO method of accounting for multiple fungible investments (e.g., common stock of a QOF) in a QOF for purposes of determining when Deferred Gains are recognized. Furthermore, the Proposed Regulations also require a pro rata method for Deferred Gains with different tax attributes.

The Proposed Regulations clarify that a taxpayer can spread its Deferred Gain to multiple QOFs and make multiple elections with respect to the portion of gain for which a deferral election has not already been made. Therefore, while multiple elections with respect to the original gain recognition transaction are permitted, the gain itself cannot be duplicated.

The Proposed Regulations also provided a helpful rule for taxpayers that recognize gain or loss on Section 1256 contracts on a contract-by-contract basis. Rather than starting the 180-day investment period at the time of the disposition of any one particular Section 1256 contract, the Proposed Regulations permit taxpayers to defer capital gain net income from all of its Section 1256 contracts for the entire taxable year, and to treat the 180-day period as beginning on the last day of the taxpayer’s taxable year. However, the Proposed Regulations further clarify that any gain from a Section 1256 contract is not eligible for deferral, if at any time during such taxable year, one of the taxpayer’s Section 1256 contracts was part of an offsetting position in a straddle in which any other position was not also a Section 1256 contract. In fact, the Proposed Regulations further limit taxpayers from deferring any gain from a position that is or has been part of an offsetting-position transaction.

For purposes of these rules, however, the Proposed Regulations adopt their own definition of a straddle rather than simply cross-referencing the straddle rules in Section 1092. This means that gain in an offsetting position of a straddle of non-actively traded personal property is not eligible for deferral.

Furthermore, the Proposed Regulations clarify that deemed contributions of money under Section 752(a) of the Code (i.e., when a partnership incurs new debt) are not treated as an investment in a QOF; otherwise such deemed investment could have diluted a partner’s ability to receive a full step-up in basis on its initial investment in the QOF if the partner held its interest in the QOF for 10 years. Treasury and IRS have requested comments on whether other pass-through entities require similar treatment and on whether other circumstances may warrant not treating a deemed contribution under Section 752(a) as creating a separate investment for purposes of the gain deferral election.

Qualified Opportunity Funds

A QOF is any entity that is organized for tax purposes as a corporation or a partnership for the purpose of investing in “qualified opportunity zone property” (QOZ Property), other than another QOF. Because the rules simply require that the QOF be organized as either a partnership or corporation, it appears that QOF can be structured into one of a variety of investment vehicle types, for example: as an open-end hedge fund; a closed-end real estate fund; as a joint venture; as a REIT; as an S corporation; or as a limited liability company (LLC). To qualify as a QOF, the investment vehicle must invest at least 90% of its assets in QOZ Property, determined by the average of the percentage of QOZ Property held in the QOF on two days of the year: (i) the last day of the first six-month period of the QOF’s tax year and on the last day of the QOF’s tax year (the 90% Test).[8] Penalties apply for each month that the QOF fails to meet the 90% Test. In addition, the QOF must meet certain certification requirements.

Observations from the Proposed Regulations

The Proposed Regulations confirm that only domestic (i.e., formed in the United States or one of its possessions) entities classified as a corporation or partnership for federal income tax purposes are eligible vehicles for forming a QOF.[9] To the extent an eligible entity is formed in a US possession (but not one of the 50 states or the District of Columbia), then it may only be a QOF to the extent it is organized for the purpose of investing in QOZ Property to be used by a trade or business in such possession. The Proposed Regulations also clarify that a pre-existing entity may qualify as a QOF provided it otherwise satisfies the statutory requirements governing QOF status.

The Proposed Regulations generally permit any corporation or partnership to self-certify as a QOF on an applicable tax form (Draft Form 8996 and Instructions), which is also expected to be used for annual reporting of compliance with the 90% Test. It’s expected that Form 8996 will be attached in relevant tax years to the taxpayer’s federal tax return. An eligible entity can specify the taxable year in which it becomes a QOF, and will be treated as a QOF in the first month of the year that the eligible entity is a QOF, unless the entity elects a different month. If a QOF elects to become a QOF in a month other than the first month of its taxable year, then the first six-month period for purposes of the 90% Test shall be the first six-month period that falls entirely within the taxable year and during which the entity is a QOF. Thus for example, for a calendar-year entity formed in February and opting April as its first month as a QOF, the testing dates for the 90% Test are September 30 and December 31 of that year. If the entity instead chose a month after June as its first month, the only testing date for the taxable year is the last day of the QOF’s taxable year. In offering QOFs, the ability to select their first month as QOF, the Proposed Regulations should provide QOFs significant flexibility in establishing their eligibility to satisfy the 90% Test. While this greater flexibility to a QOF will help ensure that a QOF satisfies the 90% Test, it also means that taxpayers that invest QOFs will likely not need to seek covenants from the QOF as to the timing of the election of the QOF’s status to preserve the ability to defer gain within the 180-day reinvestment period.

While the Proposed Regulations clarify that the penalties in respect of the 90% Test shall not apply before the first month in which an entity becomes a QOF, further guidance is still needed with respect to such penalties, including if and when any conduct may result in a QOF losing its certification, also specifying how a QOF can maintain compliance with the 90% Test following a disposition of QOZ Property.

Qualified Opportunity Zone Property

For purposes of the 90% Test, QOZ Property is property that is (i) “qualified opportunity zone stock” (“QOZ Stock”) (defined below), (ii) “qualified opportunity zone partnership interests” (“QOZ Partnership Interests”) (defined below), or (iii) “qualified opportunity zone business property” (“QOZ Business Property”) (defined below). Because a QOF is permitted to directly hold QOZ Business Property as well as invest in QOZ Businesses, presumably a QOF not only can invest in such business assets, it can also operate such business assets.

Observations from the Proposed Regulations

The Proposed Regulations provide significant flexibility to QOFs that have cash not yet invested in QOZ Property. Specifically, the Proposed Regulations provide that in certain circumstances, cash may qualify as appropriate QOZ Property, pursuant to a working capital safe harbor for QOF investments. Referencing the working capital definition provided in Section 1397(c)(1), the safe harbor allows cash and other financial property held for up to 31 months to qualify as QOZ Property, where (i) a written plan (which must be retained by the taxpayer) identifies the financial property as property held for the acquisition, construction, or substantial improvement of tangible property in the QOZ; (ii) a written schedule consistent with the ordinary business operations of the business indicates that such financial property will be used within 31-months; and (iii) the business substantially complies with the schedule. This safe-harbor should provide the practical flexibility needed by a QOF to deploy its capital.

          - Qualified Opportunity Zone Stock or Partnership Interest

QOZ Stock is stock of any domestic corporation, and a QOZ Partnership Interest is any capital or profits interest in a domestic partnership:

  1. acquired by the QOF after December 31, 2017, at original issuance solely in exchange for cash;
  2. which, at the time such stock or interest is issued, was a QOZ business (or in the case of a newly formed corporation/partnership, was organized for purposes of being a QOZ business); and
  3. which during substantially all of the QOF’s holding period, qualified as a QOZ business (defined further below).

          - Qualified Opportunity Zone Business Property

Generally, QOZ Business Property is tangible property used in a trade or business, which satisfies the following requirements:

  1. the property was acquired by purchase (other than certain purchases between related parties) after December 31, 2017;
  2. the original use of the property either begins with the QOF or the QOF substantially improves the property; and
  3. for substantially all of the QOF’s holding period, substantially all of the use of the property was in a QOZ.[10]

For purposes of requirement (ii), property is treated as substantially improved if, during any 30-month period beginning after the date of acquisition of the property, there are additions to basis with respect to the property in the QOF’s hands that exceed the adjusted basis of the property at the beginning of the 30-month period.

Observations from Proposed Regulations and the Revenue Ruling

The Proposed Regulations and the Revenue Ruling should make it easier for QOFs to satisfy the requirement to substantially improve the property by eliminating the value of the land acquired from the calculation of the necessary “substantial” improvements.[11] For example, if a QOF acquires a property for $10 million that includes a building and land, with the building valued at $6 million, the QOF will need to spend at least $6 million on improvements, rather than $10 million. In addition, the rules make it clear that the “original use” requirement does not apply to land and a QOF that does not need to separately substantially improve the land upon which the building is located.[12] This relaxation of the substantial improvement requirement should facilitate more investments in areas in which land is valuable, thereby making such investments more competitive. Moreover, although a pre-existing entity may qualify as a QOF (as discussed above), the Proposed Regulations clarify that a tangible asset can only be QOZ Business Property if it acquired the asset by purchase after December 31, 2017. Note that there remain unanswered questions as to how a QOF satisfies the “substantial improvement” requirement if it simply purchases vacant land.

          - Qualified Opportunity Zone Business

Generally, a QOZ Business is a trade or business:

  1. in which substantially all of the tangible property owned or leased by the entity is QOZ property;
  2. for which (a) at least 50% of its gross income is derived from the active conduct of a trade or business, (b) a substantial portion of intangible property is used in such trade or business, and (c) less than 5% of its assets are invested in nonqualified financial property; and
  3. which is not engaged in certain businesses (i.e., any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facility used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises).

Tangible property that ceases to be QOZ Property will, for purposes of the definition of QOZ business, continue to be treated as QOZ Property for the shorter of five years or until the property is no longer held by the QOZ Business.

Observations from Proposed Regulations

The Proposed Regulations clarify that if at least 70% of the tangible property owned or leased by a trade or business is QOZ Business Property, then that trade or business is treated as satisfying the “substantially all” requirement in prong (1) above. While the term “substantially all” is used elsewhere in the QOZ rules, the Proposed Regulations stress that the 70% threshold only applies with respect to the definition of QOZ Business. The Treasury and IRS have requested comments as to the proposed meaning of “substantially all” elsewhere in the rules. Note that the Proposed Regulations recognize that a QOF can reduce the amount of QOZ Property that it needs to hold under the 90% Test by structuring its investments through a QOZ Business that holds QOZ Business Property. By doing so, the QOF can effectively reduce the amount of QOZ Business Property it needs to hold to 63% (i.e., 90% of 70%) by acquiring such assets indirectly through a QOZ Business.

Additional Observations

Although the Treasury and the IRS issued guidance in the form of proposed regulations that will be effective when the final regulations are published adopting the Proposed Regulations, the guidance explicitly provides that taxpayers can rely on certain key provisions in the Proposed Regulations before they become final, provided that taxpayers apply the rules in their entirety and in a consistent manner. Treasury and IRS also announced that they intend to issue additional proposed regulations in the near future regarding a variety of other open issues and are continuing to seek comments from taxpayers on the Proposed Regulations and any subsequent guidance needed.

Implications for Private Equity and Real Estate Funds

Sponsors forming QOFs (in particular public or retail funds) may need to consider whether a fund’s governing documents will provide for tax distributions at the end of 2026 to account for the Deferred Gain that will have to be recognized that year. In addition, a QOF may need to be structured in a manner to accommodate investors to participate on a deal-by-deal basis because investors may not always have realized gains available to satisfy capital calls. It may be advisable for taxpayers to set up a separate QOF for each project in a QOZ, or to use series LLCs to achieve a similar effect. Furthermore, it may be worth considering revising all existing partnership agreements to provide notice to limited partners of dispositions of assets generating gain to the limited partners such that the limited partners have sufficient time to roll such gains in a QOF. In addition, sponsors of QOFs that intend to seek to rely on the exclusion for QOF Gain with respect to their profits interest in a QOF will need a corresponding Deferred Gain to roll into the QOF to take the position that the profits interest is eligible for the step-up in basis under these new rules. While the Proposed Regulations answered many questions, there still remain many unanswered questions under Subchapter K as they apply to QOFs. 

Implications for Tax-Exempt Investors

To the extent a tax-exempt investor rolls Deferred Gain into a QOF and such QOF is taxed as a partnership, the tax-exempt investor should consider making a protective gain deferral election, such that to the extent the QOF causes any gain treated as a UBTI (e.g., as a result of the QOF being leveraged or directly operating business assets) to be allocated to the tax-exempt partner, the tax-exempt partner would be able to exclude the UBTI gain by holding the QOF interest for the requisite 10-year period.

Implications for Non-US Investors

Neither the Code nor the Proposed Regulations include any language limiting Section 1400Z-2’s applicability to FIRPTA gain. Presumably the same analysis above applies to a foreign investor that files US tax returns, and the requisite gain deferral and basis step-up elections could be made by such an investor to exclude FIRPTA gain.

Additional information and resources from the IRS regarding Qualified Opportunity Zones can be found here.

Morgan Lewis intends to offer a webinar to discuss the Proposed Regulations and to answer questions regarding these new investment vehicles.



[1] Unless otherwise noted, references herein to the “Code” and “Section” are to the Internal Revenue Code of 1986, as amended.

[2] The Qualified Opportunity Zones represent roughly 11% of the United States. Forrest Milder, INSIGHT: Twenty Hot Topics About Opportunity Zones, Bloomberg Daily Tax Report (Oct. 18, 2018). See here for the list of designated Qualified Opportunity Zones.

[3] Section 1400Z-2(a)(1)(A).

[4] There are no limitations similar to Section 1031 like-kind exchanges requiring that such proceeds be held in escrow or with an intermediary.

[5] Section 1400Z-2(e)(1). The Proposed Regulations provide that the Deferred Gain and any other capital contribution (other than a Deferred Gain) made by same taxpayer be treated as separate investments. Prop. Reg. § 1.1400Z-2(e)-1(a).

[6] Depreciation recapture and other types of gain converted to or treated as ordinary income would not qualify.

[7] Prop. Reg. § 1.1400Z-2(a)-1(b)(3)(i). Debt instruments within the meaning of Section 1275(a)(1) and 1.1275-1(d) are excluded. Id.

[8] Section 1400Z-2(d)(1).

[9] Prop. Reg. § 1.1400Z-2(d)-1(e)(1). The IRS’s website clearly indicates that such entities are eligible to be QOFs.

[10] See note 1 supra.

[11] Prop. Reg. § 1.1400Z-2(d)-1(a)(8)(ii).

[12] See Rev. Rul. 2018-29.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

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