The Working Capital Safe Harbor is a provision within the Qualified Opportunity Fund (QOF) industry, which refers to a set of regulations provided by the Internal Revenue Service (IRS) in the United States. This provision allows QOFs to hold cash, cash equivalents, or debt instruments with a term of 18 months or less as working capital for a period of up to 31 months. During this time, the funds must be intended for the acquisition, construction, or substantial improvement of tangible property in an Opportunity Zone.

The purpose of the Working Capital Safe Harbor is to give QOFs a reasonable amount of time to plan and deploy capital in Opportunity Zones, which are economically distressed communities where new investments, under certain conditions, may be eligible for preferential tax treatment.

To qualify for the safe harbor, the QOF must have a written plan that identifies the financial property as working capital that is used in a trade or business in the Opportunity Zone, and there must be a written schedule consistent with the ordinary start-up of a business for the expenditure of the working capital assets. Additionally, the business must substantially comply with this schedule.

This provision is particularly important because it provides flexibility and assurance to investors that they will not be penalized for holding liquid assets while they are in the process of investing in an Opportunity Zone, as long as they are working within the guidelines set by the IRS.