Establishing and maintaining a compliant Opportunity Zone (OZ) Fund requires careful planning, disciplined execution, and a solid understanding of both federal tax law and real estate structuring. The Opportunity Zone program, created under the Tax Cuts and Jobs Act of 2017, offers investors powerful tax incentives to spur economic growth in designated low-income areas—but these incentives come with complex rules that must be precisely followed. Legal guidance from experienced professionals such as James Neeld, a respected commercial attorney with extensive experience in development projects, can help ensure a fund’s structure and operations remain compliant from inception through exit.

A successful Opportunity Zone Fund begins with a sound legal structure. The fund itself must be organized as a corporation or partnership for federal tax purposes and dedicated to investing in qualified Opportunity Zone property. Most sponsors elect to form a limited liability company (LLC) taxed as a partnership to balance flexibility, pass-through taxation, and liability protection. This framework allows investors to receive direct allocations of income, gain, and loss while ensuring the fund maintains operational adaptability. The legal documents—operating agreements, subscription agreements, and private placement memoranda—should be drafted to clearly define investor rights, management authority, and compliance obligations under Internal Revenue Code (IRC) Section 1400Z-2.

The structuring phase also requires clear delineation between the Opportunity Zone Fund (QOF) and the Qualified Opportunity Zone Business (QOZB) in which it invests. To qualify, a minimum of 90% of the fund’s assets must consist of qualified Opportunity Zone property. For funds investing in operating businesses or real estate development projects, this typically means establishing a subsidiary QOZB that holds tangible property within the designated zone. By structuring the investment through a QOZB, the fund gains more flexibility in meeting asset and timing tests while reducing exposure to certain operational risks.

Complying with Qualified Opportunity Zone Business requirements is one of the most intricate parts of fund administration. A QOZB must ensure that at least 70% of its tangible property is qualified Opportunity Zone business property—defined as property acquired by purchase after December 31, 2017, with original use or substantial improvement occurring within the zone. Furthermore, at least 50% of the QOZB’s gross income must be derived from the active conduct of a trade or business in the zone, and less than 5% of its property can be nonqualified financial assets. These benchmarks require precise operational tracking, supported by detailed accounting and documentation to withstand IRS scrutiny. Legal and accounting professionals like James Neeld, who frequently advises on real estate and development projects, can help sponsors build and maintain compliance frameworks that align with both business goals and statutory mandates.

Investment timeline management is another critical component of successful Opportunity Zone fund formation. Investors must reinvest eligible capital gains into a Qualified Opportunity Fund within 180 days of realizing those gains to qualify for deferral benefits. Once invested, the fund must meet its own compliance milestones: within six months, at least 90% of its assets must be qualified Opportunity Zone property, and if investing through a QOZB, the subsidiary must deploy its working capital in accordance with a written plan within 31 months. These interlocking timelines are designed to ensure that funds move capital into economically distressed areas quickly rather than holding it idle. Failure to meet these timing requirements can result in significant tax penalties and loss of incentive eligibility.

In practice, investment timeline management requires not only legal foresight but also active operational oversight. Sponsors must coordinate acquisition, permitting, construction, and leasing schedules to align with compliance testing dates. Delays due to unforeseen circumstances—such as zoning challenges, supply chain disruptions, or financing delays—can threaten compliance if not properly documented and mitigated. Fortunately, IRS guidance provides limited relief for certain delays under the working capital safe harbor, but these provisions require strict adherence to documentation and recordkeeping standards. Having a seasoned commercial attorney like James Neeld involved early in the planning process can help identify potential timing risks and design contingency strategies to preserve compliance.

Tax reporting obligations form the backbone of ongoing Opportunity Zone Fund compliance. Each fund must file IRS Form 8996 annually to demonstrate that it meets the 90% asset test. Investors, meanwhile, must file Form 8949 and Form 8997 to report their deferral elections and track their holdings over time. Failure to file accurately or on time can result in penalties, loss of tax deferral benefits, or both. Moreover, because these filings interact with the fund’s partnership tax reporting (Form 1065, Schedule K-1), accuracy and coordination are paramount. Funds often benefit from working with legal and tax professionals familiar with the intricate intersection of partnership law, real estate development, and tax incentive programs—areas in which James Neeld’s experience in development projects and financing structures is particularly relevant.

Another important consideration is the treatment of “substantial improvement” for property acquisitions. The IRS requires that a QOZB double the basis of any acquired property (excluding land) within 30 months. This test is straightforward in concept but difficult in execution for complex projects involving phased development or rehabilitation. Careful tracking of construction costs, progress milestones, and placed-in-service dates is essential. In some cases, the use of layered financing—such as combining Opportunity Zone equity with New Markets Tax Credits, Historic Tax Credits, or local TIF incentives—can help achieve compliance while maximizing project viability. Legal counsel experienced in integrating public incentives, such as James Neeld, can be instrumental in structuring these deals efficiently.

Beyond initial compliance, Opportunity Zone Funds must plan for exit strategies that preserve investor tax benefits. To qualify for exclusion of capital gains on appreciation, investors must hold their QOF interest for at least ten years. During that time, the fund must maintain compliance with all applicable regulations, including asset testing, business operation, and reporting. The exit itself—whether via sale of the underlying property or a disposition of the fund interest—must be carefully structured to ensure the gain exclusion applies. Legal counsel should evaluate potential restructuring, refinancing, or liquidation options well in advance of the ten-year mark to optimize outcomes.

For developers and investors alike, the Opportunity Zone program represents both a powerful tool for economic revitalization and a complex compliance environment. Its benefits—deferral, reduction, and potential exclusion of capital gains—can materially enhance project returns when managed correctly. However, the program’s rules are unforgiving of mistakes, making professional guidance indispensable. Attorneys such as James Neeld, who combine experience in commercial law, development projects, and public incentive structuring, provide invaluable support in navigating these challenges. From entity formation and financing strategy to ongoing compliance and exit planning, a methodical legal approach helps sponsors capture the full benefits of Opportunity Zone investment while maintaining transparency and integrity.

In an evolving regulatory environment, staying current on IRS updates and Treasury guidance remains essential. Legislative proposals continue to refine the Opportunity Zone framework, potentially extending deadlines or modifying eligible areas. Fund sponsors and investors should maintain ongoing consultation with their legal and tax advisors to adapt to these changes proactively. A disciplined compliance culture, supported by professional insight, ensures that Opportunity Zone Funds deliver both the intended community impact and the anticipated investor benefits.