Opportunity Zone Fund Requirements
According to §1400Z-2(d)(1), the term QOF means any investment vehicle which is organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property (QOZP) that holds at least 90 percent of its assets in QOZP, determined by the average of the percentage of QOZP held in the fund as measured- (A) on the last day of the first 6-month period of the taxable year of the fund, and (B) on the last day of the taxable year of the fund. Additionally, Reg §1.1400Z2(d)-1(a)(2) requires self-certification of an entity as a QOF by filing a Form 8996 with the IRS where the QOF identifies the first taxable year for which the self-certification takes effect and the first month (in that initial taxable year) in which the self-certification takes effect. According to Form 8996 and the accompanying instructions, by the end of the first QOF year, the organizing documents of the QOF are also required to include a statement that the purpose of the entity is to invest in QOZP and to include a ‘‘description of the qualified opportunity zone business(es) that the QOF expects to engage in either directly or through a first-tier operating entity.’’ In order to qualify for the opportunity zone tax incentives, eligible taxpayers must invest their eligible gains into the QOF within 180 days from the date the gain would be recognized for federal income tax purposes, and in exchange for an eligible interest in the QOF. According to Reg §1.1400Z2(a)-1(b)(12), eligible interest in a QOF is an equity interest issued by the QOF, including preferred stock or a partnership interest with special allocations. Thus, the term eligible interest excludes any debt instrument including those within the meaning of section 1275(a)(1) and § 1.1275–1(d).
Opportunity Zone Business Requirements
According to §1400Z-2(d)(3)(A), the term “qualified opportunity zone business” (QOZB) means a trade or business- (i) in which substantially all of the tangible property owned or leased by the taxpayer is QOZBP (determined by substituting “qualified opportunity zone business” for “qualified opportunity fund” each place it appears in paragraph 1400Z-2(d)(2)(D)), (ii) which satisfies the requirements of paragraphs (2), (4), and (8) of section 1397C(b), and (iii) which is not described in section 144(c)(6)(B).
With regards to the third QOZB core requirement, there are five separate tests that the QOZB must satisfy at the end of its taxable year to comply with Reg §1.1400Z2(d)-1(d)(1)
(1) Substantially all (at least 70%) of the tangible property owned or leased by the QOZB must be QOZBP; (2) Pursuant to section 1397C(b)(2), at least 50% of total QOZB gross income must be derived from the active conduct of a business in a Qualified Opportunity Zone (QOZ); (3) Pursuant to section 1397C(b)(4), at least 40% of QOZB intangible property must be used in the active conduct of a business in a QOZ; (4) Pursuant to section 1397C(b)(8), no more than 5% of the average of the aggregate unadjusted basis of property held by the QOZB may be attributable to nonqualified financial property (NQFP); and (5) Pursuant to section 1400Z– 2(d)(3)(A)(iii), the QOZB must be engaged in a trade or business that is not described in section 144(c)(6)(B).
Reg Test 1
To meet the first Reg §1.1400Z2(d)-1(d)(1) test, Reg §1.1400Z2(d)-1(d)(2)(i) provides at the end of each taxable year at least 70 percent of the tangible property owned or leased by the QOZB must be QOZBP. Reg §1.1400Z2(d)-1(d)(2)(ii) further provides determining whether a QOZB meets the 70% tangible property requirement is determined by using a fraction, the numerator of which is the total value of all QOZBP owned or leased by the QOZB and the denominator of which is the total value of all tangible property owned or leased by the QOZB.
Reg Test 2
To meet the second Reg §1.1400Z2(d)-1(d)(1) test, Reg §1.1400Z2(d)-1(d)(3)(i) provides at the end of each taxable year at least 50% of the QOZB’s gross income must be derived from the active conduct of a business in a QOZ. There are four separate ways a QOZB can meet this test, and any way works. The first looks to the number of hours of services performed by employees, partners that provide services to a partnership, independent contractors, and employees of independent contractors, and the test is met if at least 50% of all of those services performed for a QOZB are performed in a QOZ. The second looks to the total amount paid by the entity for services performed by employees, partners that provide services to a partnership, independent contractors, and employees of independent contractors, and the test is met if at least 50% of all services performed for a QOZB are performed in a QOZ. The third looks to the location of business management, and the test is met if tangible property located in a QOZ and management or operational functions performed in a QOZ are each necessary for the generation of at least 50% of the gross income. The fourth looks at if based on all the facts and circumstances, at least 50 percent of the gross income of a QOZB is derived from the active conduct of a trade or business in a qualified opportunity zone.

Reg Test 3
To meet the third Reg §1.1400Z2(d)-1(d)(1) test, Reg §1.1400Z2(d)-1(d)(3)(ii)(A) provides at the end of each taxable year a substantial portion of the intangible property of a QOZB is used in the active conduct of a trade or business in a QOZ. For purposes of §1400Z– 2(d)(3)(A)(ii) and the preceding sentence, the term substantial portion means at least 40 percent. Reg §1.1400Z2(d)-1(d)(3)(ii)(B) further provides intangible property of a QOZB is used in the active conduct of a trade or business in a QOZ if— (1) The use of the intangible property is normal, usual, or customary in the conduct of the trade or business; and (2) The intangible property is used in the QOZB in the performance of an activity of the trade or business that contributes to the generation of gross income for the trade or business.

Reg Test 4
To meet the fourth Reg §1.1400Z2(d)-1(d)(1) test, Reg §1.1400Z2(d)-1(d)(3)(iv) provides at the end of each taxable year less than 5 percent of the average of the aggregate unadjusted bases of the property of a qualified opportunity zone business is attributable to nonqualified financial property (NQFP). Section 1397C(e)(1) which defines the term NQFP for purposes of section 1397C(b)(8), excludes from that term reasonable amounts of working capital held in cash, cash equivalents, or debt instruments with a term of 18 months or less (working capital assets). Section 1397C(e)(1) otherwise defines NQFP as debt, stock, partnership interests, options, futures contracts, forward contracts, warrants, notional principal contracts, annuities and other similar property. Cash and cash equivalents will also be considered NQFP if such amounts are not protected by a reasonable working capital safe harbor.
Reg Test 5
To meet the fifth Reg §1.1400Z2(d)-1(d)(1) test, Reg §1.1400Z2(d)-1(d)(4)(i) provides at the end of each taxable year the following trades or businesses, and businesses leasing more than a de minimis amount of property to the following trades or businesses, cannot qualify as a qualified opportunity zone business: (A) a private or commercial golf course; (B) a country club; (C) a massage parlor; (D) a hot tub facility; (E) a suntan facility; (F) a racetrack or other facility used for gambling; or (G) any store the principal business of which is the sale of alcoholic beverages for consumption off premises. Reg §1.1400Z2(d)-1(d)(4)(iii) further provides The term de minimis amount of property, used in paragraph (d)(4)(i) of this section, means less than 5 percent of the net rentable square feet for real property and less than 5 percent of the value for all other tangible property. The term de minimis amount of gross income, used in paragraph (d)(4)(ii) of this section, means less than 5 percent of the gross income of the qualified opportunity zone business may be attributable to the types of business described in section 144(c)(6)(B).
Opportunity Zone Business Property Requirements
According to §1400Z-2(d)(2)(D), The term QOZBP means tangible property used in a trade or business of the QOF or QOZB if- (I) such property was acquired by the QOF or QOZB by purchase (as defined in section 179(d)(2)) after December 31, 2017, (II) the original use of such property in the qualified opportunity zone commences with the QOF or QOZB, or the QOF or QOZB substantially improves the property, and (III) during substantially all of the QOF’s or QOZB’s holding period for such property, substantially all of the use of such property was in a qualified opportunity zone.
Breaking Down The 3 Requirements

1st QOZBP Requirement
With regards to the first QOZBP requirement, that the tangible property be acquired by purchase from an unrelated party after December 31, 2017, determining compliance is relatively straightforward. First, the property must be acquired after December 31, 2017. Tangible property owned before December 31, 2017, is always ineligible to be considered QOZBP. Second, the tangible property must be acquired from an unrelated party. Relatedness for purposes of this requirement is determined following the rules of §179(d)(2). According to the rules of §179(d)(2), parties are related if they are members of the same family, or the property is acquired from an entity, in which the purchaser owns 20% or more equity.
2nd QOZBP Requirement
With regards to the second requirement, that the tangible property be original use or substantially improved, compliance with this test can be achieved through two different avenues. To meet the original use requirement, Reg §1.1400Z2(d)-2(b)(3) provides the original use of tangible property in a QOZ on the date any person first places the property in service in the qualified opportunity zone for purposes of depreciation or amortization, or first uses it in a manner that would allow depreciation or amortization if that person were the property’s owner. This rule commonly applies to new tangible property such as equipment or machinery, but also new structures built on land, should the land have no existing buildings or vacant buildings. Otherwise, if property does not meet original use requirement, the purchaser must substantially improve existing tangible property. To meet the substantial improvement requirement, Reg §1.1400Z2(d)-2(b)(4) provides tangible property is treated as substantially improved by a QOF or QOZB only if it meets the requirements of section 1400Z– 2(d)(2)(D)(ii) during the 30-month substantial improvement period. The property has been substantially improved when the additions to basis of the property in the hands of the QOF exceed an amount equal to the adjusted basis of such property at the beginning of such 30-month period in the hands of the QOF (substantial improvement requirement). Additionally, Reg §1.1400Z2(d)-2(b)(4)(iv) provides if a QOF or QOZB purchases a building located on a parcel of land within the geographic borders of a QOZ, for purposes of section 1400Z– 2(d)(2)(D)(ii), a substantial improvement to the building is measured by the eligible entity’s additions to the basis of the building, as determined under section 1012. Thus, the substantial improvement applies when the tangible property in an QOZ, which consists of buildings that have already been depreciated by the seller.

3rd QOZBP Requirement
With regards to the third requirement, that during substantially all (90%) of the holding period for the property, substantially all (70%) use of it occurs in a QOZ, two relevant tests must be satisfied. The first test is the 70% use test, which Reg §1.1400Z2(d)–2(d)(4) provides that “based on the number of days between two consecutive semiannual testing dates, not less than 70 percent of the total utilization of the tangible property by the trade or business occurs at a location within the geographic borders of a qualified opportunity zone”. Reg §1.1400Z2(d)–2(d)(3)(i) further provides that tangible property satisfies the 90% holding period test only if, during at least 90 percent of the period during which the QOF or QOZB has owned or leased the property, the property has satisfied the 70-percent use test. The 90% holding period test is applied on a semiannual basis, based on the entire amount of time the QOF or QOZB has owned or leased such property.