The concept of active appears several times in the code and is defined differently in different contexts, Burton says. For instance, a fund that owns an interest in a lower-tier partnership or corporation in an Opportunity Zone must derive 50% of its gross income from an active business. “We need a definition of 'active' for this purpose,” Burton says. “Is renting real estate active? If you're a landlord, is that active? Does it matter if it's a triple net lease, where you're providing as the landlord maintenance, insurance and paying the property taxes? Or do only full service leases count?”

Who carries out this 'active' business?

A related point is whether this 'active' business is being run by 1099 independent contractors or does it have to be run by full-time employees. In other words, does it matter whether the pipes are fixed and the rent is collected by a contractor or an employee that has health insurance and retirement benefits?

More questions about whether your business is in the qualified opportunity zone.

The Treasury Department made clear in its rules that a business can qualify as being in an Opportunity Zone as long as 70% of its property is in the designated area. But there is still more nuance to this that needs to be addressed, Burton says. “What if your business is a landscaping business and the assets are trucks and lawn mowers. Is it enough if these assets are garaged in the zone? Or does it matter more where these assets are used–such as within the zone. Do all of the yards and campuses that are being landscaped have to be in the zone or can some be located outside of the zone?” What if a truck is owned by a leasing company that is located outside of the zone?, Burton wonders. Or if the title has the address of Ford Motor Credit instead of the address in the Qualified Opportunity Zone?

How do you record losses with the tax basis?

Burton gives the simple example of an investor that paid $200 for stock, sold it for $300 and took the $100 it realized and invested it in a Qualified Opportunity Zone–just as the transaction is supposed to work under the guidelines. The rules state that this investment has a zero basis at first, so this investor will not get any tax basis for that $100 cash investment.

Now let's say the fund takes that $100 and buys a truck or a metal press or an assembly line–all of which would qualify for 100% expensing. So now the fund is going to depreciate the $100 metal press by 100% the first year. And let's also say the fund only made $10 so the investor has a $90 loss. “That loss is supposed to flow to the investor as a partner in the fund but because it has zero basis in the fund, it means it can't take a loss.”

The question becomes, Burton continues, what happens to that loss? “Do I lose it forever, which would be harsh, or does it get suspended and the investor receives it in the future when it has a basis in the fund after five years?”

What about investment tax credits?

There are similar questions around investment tax credits, he says. This matters for developers that want to build projects with renewable energy or use Low Income Housing Tax Credits. It is unclear how this would work, Burton says.

Capital Will Get Moving

The rules the Treasury Department produced last week are enough to get much of the capital sitting on the sidelines moving, Burton says, with only certain projects affected. “I don't think anyone is going to build a solar project in a Qualified Opportunity Zone and count on the tax credits from depreciation until these questions are answered.”