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#1 Posted : Wednesday, May 17, 2023 4:56:21 PM(UTC)

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A number of investment clubs received a notice from the IRS informing the club of a penalty assessed for failing to meet the investment requirements of a Qualified Opportunity Fund. A Qualified Opportunity Fund must invest and maintain 90% of its assets in Opportunity Zones. Since investment clubs invest nearly all their assets in publicly traded securities, it is highly unlikely an investment club is a Qualified Opportunity Fund. Also, a club would need to annually include IRS form 8996 with its tax return. If a club never filed this form, it cannot be a Qualified Opportunity Fund. Use the contact information on the letter from the IRS to inform the IRS the club never filed form 8996, has never been and does not plan to be a Qualified Opportunity Fund. If you feel it helps and is true, include that the club is an investment partnership (LLC, if applicable) but limits its investments to publicly traded securities.
Background – Qualified Opportunity Funds are investment vehicles for investments in Opportunity Zones. Opportunity Zones are defined in the Tax Cuts and Jobs Act of 2017. Qualified Opportunity Funds must invest and maintain at least 90% of their assets in property or businesses located within Opportunity Zones. A few types of businesses are excluded as investments, even if located in an Opportunity Zone. In return, income from these investments gets preferential tax treatment.

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