In 2017, the US government created the Opportunity Zone program. This program was initiated to promote investment in communities where economic development has lagged the rest of the United States. An increasing number of investors, entrepreneurs, and venture capitalists are taking advantage of this incredible opportunity.

How to Conduct Business in an Opportunity Zone

There are a few requirements for a business if it wants to conduct business in an Opportunity Zone and reap the benefits of doing so. One hurdle is that the business will need to have at least 50% of its gross income coming from business activities within an Opportunity Zone.

At the beginning of the Opportunity Zone program, this was a murky area not clearly defined. Thankfully, the IRS has made it clearer, and much easier, to meet this requirement. To meet this requirement, the business must meet only one of the following safe harbors:

• The management, operations, and tangible property of a business that produce at least 50% of their gross income are within an Opportunity Zone.
• At least 50% of the services the business conducts must be within an Opportunity Zone. This total would be based on either the total number of hours worked by employees and independent contractors or the amount of compensation paid to them as a percentage of the total.

What this all means is that when a business moves or places its headquarters within an Opportunity Zone, it will be able to meet the 50% gross income requirement. This is true regardless of where it generates its income.

A business can also locate its headquarters outside of an Opportunity Zone and still meet the 50% gross income requirement under one condition. Its employees and contractors would have to spend a majority of their time working within the Opportunity Zone. Knowing these requirements will help you readjust the way you do business if you want to pursue conducting business in an Opportunity Zone.

Some Businesses Need Not Apply

Although the Opportunity Zone investment incentive program is quite accommodating when it comes to what types of businesses can reap the benefits of one of these zones, some businesses are not allowed to. These include the following;

• Golf courses
• Country clubs
• Massage parlors
• Hot tub facilities
• Suntanning facilities
• Gambling facilities
• Racetracks
• Liquor stores

None of these businesses would be considered as a Qualified Business. They would be barred from taking advantage of the incentives provided by Opportunity Zones. While it would be nice for any legal business to take advantage of these new zones offering tax benefits, there is a small minority of businesses which are barred from the program at this time.

An Opportunity For Most Businesses

Opportunity Zones are quickly becoming a popular investment incentive program for investors, communities, and entrepreneurs alike. Even venture capital is starting to get injected into what were economically distressed areas of the United States. Thanks to the tax benefits which come with shifting business activities into Opportunity Zones, there is a growing number of investors and businesses calling Opportunity Zones their homes.