For those that are familiar with the formation of these qualified funds (I have heard a few people say they are relatively easy to form and are self certified), I had a few general questions (this relates directly to a specific source of qualified gains I am speaking with):
Capital gain was realized in December 2018. Investor has until end of June 2019 to drop whatever amount of the qualified gain they choose into an OZF. Is this as simply as forming an LLC (i.e. My OZ Fund LLC) and self certifying it as whatever it needs to be in order to qualify? I have spoken to fund managers who have told me that the formation costs of such funds are a significant cost (i.e. $50,000-$150,000), but others I have spoken to have scoffed at the notion that it needs to be so costly.
Assuming $20MM is my capital gain and I decide to dump all $20MM into a fund I create next month, I would then have 180 days to actually pair the capital with actual investments before the Fund was tested for compliance? Let's say 3-4 months from now I decided to invest half the $20MM and not invest the other half. Would I simply pay capital gains tax on the $10MM and maybe some penalties? Or would it be more punitive than that?
Lastly, assuming I have no identified any projects at the time I drop money into the OZF, but assume I will be able to find ones I like over the next 3-6 months, can My OZ Fund LLC simply invest or buy interests in an existing LLC that is developing a project in an Opp Zone? I have heard that funds cannot invest in other funds, etc. But I am unsure how this works in reality. Example, a developer I know purchased a site in a QOF 9 months ago (August 2018). He purchased all cash and also paid cash for predevelopment costs. He did NOT use qualified gains on his end, so basically he went into the deal not contemplating the OZ strategy. In order to actually develop the project using LP capital for a OZF, would he need to sell the property into a new partnership that was set up as OZ compliant? Or could he simply raise whatever additional equity he needed from a OZF and the developer's money in the deal would simply be treated as non OZ while the LP would be treated as OZ?
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