Talk to an Advisor

Related Party

A Related Party is typically used to describe individuals or entities that have certain relationships that might raise concerns about non-arms length transactions or potential abuses of the intended tax benefits. The concept is critical because certain transactions between a QOF and a related party can be limited or prohibited to ensure the integrity of the QOF program.

The definition of a Related Party within this context is detailed in the Internal Revenue Code (IRC) and the associated Treasury Regulations. Generally, for QOF purposes, a person or entity may be considered a related party if:

  1. The person owns, directly or indirectly, more than 20% of the capital interest or profits interest of the entity, or
  2. The person and the entity are both owned, directly or indirectly, by the same persons based on specific ownership thresholds.

It’s important to note that these related party rules have implications for the QOF regime, especially when it comes to the acquisition of property. For instance, there are restrictions on a QOF or a Qualified Opportunity Zone Business (QOZB) buying property from a related party.

For a comprehensive understanding of the Related Party concept in the QOF industry and its implications, one should consult the specific sections of the IRC, Treasury Regulations, and related IRS guidance, or seek advice from a tax professional familiar with Opportunity Zone investments.