8996 Instructions for Form 8996

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Instructions for Form 8996

Department of the Treasury
Internal Revenue Service

(Rev. December 2021)
Qualified Opportunity Fund
Section references are to the Internal Revenue
Code unless otherwise noted.

as a corporation or a partnership for the
purpose of investing in QOZ property
(other than another QOF). To be eligible
to be a QOF, such an investment
vehicle must be organized under the
laws of one of the 50 states, a federally
recognized Indian tribe (see Pub. 4267
for further information), the District of
Columbia, or a U.S. possession. A QOF
must hold at least 90% of its total assets
in QOZ property. See 90% investment
standard, next.

the Northern Mariana Islands, the
Commonwealth of Puerto Rico, and the
U.S. Virgin Islands.

DRAFT AS OF
November 8, 2021

General Instructions
Future Developments

For the latest information about
developments related to Form 8996 and
its instructions, such as legislation
enacted after this form and instructions
were published, go to IRS.gov/
Form8996.

What’s New

Penalty relief for qualified opportunity funds. For certain taxpayers who do
not meet the 90% investment standard
for qualified opportunity funds, the
penalty may be waived. See Penalty
relief, under Part IV, later.

Purpose of Form

The Tax Cuts and Jobs Act (TCJA),
section 13823, added section 1400Z-1
to provide for the designation of certain
census tracts as qualified opportunity
zones (QOZs) and added section
1400Z-2 to provide certain benefits for
investments in these QOZs through
investment in qualified opportunity funds
(QOFs). Taxpayers that invest in QOZ
property through a QOF can defer the
recognition of certain gains. See
Definitions, later.
A corporation or partnership uses
Form 8996 to certify that it is organized
to invest in QOZ property. In addition, a
corporation or partnership files Form
8996 annually to report that the QOF
meets the 90% investment standard of
section 1400Z-2 or to figure the penalty
if it fails to meet the investment
standard. See Definitions next. Also see
IRS.gov/Ozfaqs for more information
and guidance.

Definitions
Qualified opportunity zone (QOZ).
For a complete list of QOZs, see Notice
2018-48 and Notice 2019-42. You can
find Notice 2018-48 at IRS.gov/IRB/
2018-28_IRB#NOT-2018-48. Notice
2019-42 can be found at IRS.gov/IRB/
2019-29_IRB#NOT-2019-42.
Qualified opportunity fund (QOF). A
QOF is an investment vehicle organized
Nov 04, 2021

90% investment standard. The 90%
investment standard is determined by
the average of the percentage of QOZ
property held in the QOF as measured
on:
1. The last day of the first 6-month
period of the tax year of the QOF, and
2. The last day of the tax year of the
QOF.

If a corporation or partnership is
organized in a U.S. possession,
CAUTION it may be a QOF only if it is
organized for the purpose of investing in
QOZ property that relates to a trade or
business operated in the U.S.
possession in which the corporation or
partnership is organized.

!

Cash not immediately invested. If
an investor contributes cash to your
QOF, but you are unable to immediately
invest the cash into a QOZ property,
you can still meet the 90% investment
standard. You may exclude the cash
from the calculation of the 90%
investment standard if the following
requirements are met:
• You received the cash in exchange
for stock or partnership interest in the
QOF;
• The contribution or exchange
occurred not more than 6 months before
the test from which it is excluded; and
• Between the date of the fifth business
day after the contribution or exchange
and the date of the semiannual test, the
amount was held continuously in cash,
cash equivalents, or debt instruments
with a term of 18 months or less.
U.S. possession. A U.S. possession is
any jurisdiction other than the 50 states
and the District of Columbia where there
is a designated QOZ, which includes
the following U.S. territories: American
Samoa, Guam, the Commonwealth of
Cat. No. 71709K

Total assets. Total assets includes
cash, investments, furniture, fixtures,
equipment, receivables, intangibles,
and any items of value owned or leased
by the investment vehicle. In
determining satisfaction of the 90%
investment standard, an investment
vehicle may choose for some items to
be excluded from total assets. These
optionally excludable items are
inventory property and certain property
that the corporation or partnership
received solely in exchange for stock in,
or a partnership interest in, the
investment vehicle.
To determine if you meet the
requirements for exclusion of property
received for equity in the investment,
see Cash not immediately invested,
earlier.
An item excluded from total assets is
not included in Part II, lines 8 and 11
(“Total assets” at various times), or in
Part II, lines 7 and 10 (“Total QOZ
property” at those times).

QOZ property. QOZ property means
QOZ stock, a QOZ partnership interest,
and QOZ business property.
QOZ stock is any stock of a
domestic corporation that a QOF
acquires after 2017 from the
corporation, either directly or through an
underwriter, solely in exchange for cash.
The corporation must be a QOZ
business, defined later in Definitions,
when the stock is purchased (or, in the
case of a new corporation, the
corporation must be organized for the
purpose of being a QOZ business). The
corporation must qualify as a QOZ
business for at least 90% of the time the
QOF holds the stock.
A corporation organized in a U.S.
possession is a domestic corporation
for this purpose only if the corporation
conducts a QOZ business in the U.S.
possession in which the corporation is
organized. See Who Must File
regarding when such a corporation must
file Form 1120-F.
QOZ partnership interest is any
capital or profits interest in a domestic
partnership that a QOF acquires from

the partnership after 2017 in exchange
for cash. The partnership must be a
QOZ business when the QOF acquires
the interest (or, in the case of a new
partnership, the partnership must be
organized for the purpose of being a
QOZ business). The partnership must
qualify as a QOZ business for at least
90% of the time the QOF holds the
interest.
A partnership organized in a U.S.
possession is a domestic partnership for
this purpose only if the partnership
conducts a QOZ business in the U.S.
possession in which the partnership is
organized.

1. The use of the property in a QOZ
originates with the QOF, or the QOF
substantially improves the property.
To satisfy the substantial
improvement test in (1) above, the
property must be in a QOZ and, during
any 30-month period beginning after the
date of the acquisition of such property,
additions to basis with respect to the
property in the hands of the QOF are
more than an amount equal to the
adjusted basis of the property at the
beginning of the 30-month period in the
hands of the QOF.
2. During substantially all of the
QOF’s holding period for the property,
substantially all of the use of the
property was in a QOZ. To meet this
requirement, at least 70% of the use of
the property must be in a QOZ during at
least 90% of the time the QOF held the
property.

1. At the time that the lease was
entered into, the lease terms must be
market rate (they reflect common,
arms-length market pricing in the locale
that includes the QOZ).
2. During substantially all of the
QOF’s holding period for the property,
substantially all of the use of the
property was in a QOZ. To meet this
requirement, at least 70% of the use of
the property must be in a QOZ during at
least 90% of the time the QOF leased
the property.

DRAFT AS OF
November 8, 2021

QOZ business property is tangible
property that a QOF or QOZ business
acquires by purchase or lease after
2017, if the QOF or QOZ business uses
the tangible property in a trade or
business. Additional requirements
described below apply depending on
whether the property is acquired by
purchase or lease. See Regulations
section 1.1400Z2(d)-2 for additional
special rules.

Real property that straddles a
QOZ and a non-QOZ. If you purchase
real property that straddles a QOZ and
a non-QOZ, the real property can still be
treated as QOZ business property if it
meets all the following requirements.
• You use the portion of the real
property that is within the QOZ in your
trade or business.
• You use the portion of the real
property that is outside the QOZ in your
trade or business.
• The portion of the real property that is
located within the QOZ is substantial
compared to the portion of the real
property that is outside the QOZ. To
determine if it’s substantial, either the
square footage in the QOZ must be
greater than the square footage outside
the QOZ, or the unadjusted cost of the
real property located in the QOZ must
be greater than the unadjusted cost
basis of the real property located
outside the QOZ.
• The portion of the real property inside
the QOZ must be adjoining the portion
of the real property outside the QOZ.
Real property will be considered
adjoining if they posses common
boundaries and would be adjoining but
for the intrusion of a road, street, or
similar boundary.
Purchased tangible property.
Purchased tangible property must
satisfy both of the following tests.

Tangible property owned by a QOZ
business is QOZ business property if it
complies with rules similar to those
above.
Property undergoing substantial
improvement. Purchased tangible
property in a QOZ that is undergoing the
substantial improvement process can
be treated as QOZ business property
for purposes of the 90% investment
standard. You may treat tangible
property undergoing improvement that
is not yet placed in service as QOZ
business property during the 30-month
period as long as you reasonably expect
the property will be QOZ business
property after the improvements are
completed.
Multiple buildings in a QOZ. If you
purchase multiple buildings in a QOZ or
adjoining QOZs, you can treat the
buildings as a single property for
purposes of the substantial
improvement requirements if either of
the following applies.
• All the eligible buildings are located
entirely within one parcel of land
described in one deed.
• All the buildings are located entirely
within the geographic borders of
adjoining parcels of land described in
separate deeds; each building is
operated as one or more trades or
businesses that are operated
exclusively by you; the buildings share
facilities or significant centralized
business elements and are operated in
coordination with each other.
Leased tangible property. Leased
tangible property must satisfy both of
the following tests.
-2-

Tangible property leased by a QOZ
business is QOZ business property if it
complies with rules similar to those
above.

There are additional
requirements that must be
CAUTION satisfied for tangible property
leased from a related person to be QOZ
business property. The lessee must not
at any time make any prepayment in
connection with the lease that exceeds
12 months. In the case of leased
tangible personal property that was
used in the QOZ before the beginning of
the lease, the lessee must purchase
QOZ business property with a value at
least equal to the value of the leased
tangible personal property before the
earlier of the last day of the lease or 30
months after receipt of the tangible
personal property under the lease.

!

Leases with governments. Leases
between the QOF or QOZ business and
state governments, local governments,
or Indian tribal governments are not
subject to the market rate requirement.
Investment value. Investment
value is the value of QOZ stock or a
QOZ partnership interest owned by the
QOF as determined according to the
rules in Regulations section
1.1400Z2(d)-1(b).
QOZ business. A trade or business
is a QOZ business if at least 70% of its
owned or leased tangible property is
QOZ business property, defined in
Definitions earlier, and if the trade or
business satisfies all of the following
tests.
1. The business generates at least
50% of its total gross income from the
active conduct of a trade or business in
a QOZ.
2. The business uses a substantial
part of its intangible property in the
active conduct of any such business.
3. Less than 5% of the average of
the total unadjusted basis of the

Instructions for Form 8996 (Jan. 2021)

property of the business is from
nonqualified financial property.
4. The business is not a private or
commercial golf course, country club,
massage parlor, hot tub facility, suntan
facility, racetrack or other facility used
for gambling, or any store the principal
business of which is the sale of
alcoholic beverages for consumption off
premises.

consume its working capital assets,
provided it meets the requirements of
Regulations section 1.1400Z2(d)-1(d)
(3)(v).
Working capital consumed over a
period longer than 31 months.
Generally, a QOF that invests cash into
a QOZ business can use the safe
harbor for working capital, even if the
completion of the development is
expected to take longer than 30 months
if the QOZ business has less than 5% of
its assets in non-qualified financial
property (debt, stock, partnership
interests, or other similar property).

QOZ business property during the
substantial improvement period so long
as there is a reasonable expectation
that the property will become QOZ
business property at the end of the
improvement process.

Who Must File

DRAFT AS OF
November 8, 2021

Nonqualified financial property.
Nonqualified financial property means
debt, stock, partnership interests,
options, futures contracts, forward
contracts, warrants, notional principal
contracts, annuities, and other similar
property. The definition doesn’t include
debt instruments described in section
1221(a)(4) or reasonable amounts of
working capital held as cash, cash
equivalents, or debt instruments with a
term of 18 months or less.

Working capital assets of a QOZ
business. A QOZ business can
exclude reasonable amounts of working
capital from the value of property that is
treated as nonqualified financial
property. A reasonable amount of
working capital satisfies all of the
following tests.
1. The working capital is designated
in writing for the development of a trade
or business in a QOZ, including, when
appropriate, the acquisition,
construction, and/or substantial
improvement of tangible property in a
QOZ.
2. There is a reasonable written
schedule for the consumption of the
working capital to achieve the goal set
out in (1) above.
3. The working capital is to be
consumed within 31 months of the
business’s receipt of the assets. Any
additional applications of the working
capital safe harbor must meet the
requirements of Regulations section
1.1400Z2(d)-1(d)(3)(v) and must be for
a total period of no more than 62
months.
4. The working capital is actually
used in a manner that is substantially
consistent with the requirements in
items (1) through (3).
5. If the consumption of the working
capital assets is delayed by waiting for
government action on a completed
application, the delay doesn’t cause a
failure of this safe harbor.
6. If the QOZ business is located in
a QOZ that is in a federally declared
disaster area, the QOZ business may
receive up to an additional 24 months to
Instructions for Form 8996 (Jan. 2021)

Example 1. QOF A invested cash in
B, a QOZ business. B intends to use the
cash to develop a large mixed-use real
estate development that will consist of
commercial and residential real
property. B has a master written plan to
develop the property over a 55–month
period. The plan provides the
commercial portion of the property will
be completed over a 30-month period
and the residential portion of the
property will be completed over a
subsequent 25-month period.
In Example 1, B can take advantage
of the safe harbor for working capital
even though the completion of the
development is expected to take longer
than 31 months. QOZ businesses must
have less than 5% of their assets in
non-qualified financial property (debt,
stock, partnership interests, or other
similar property). However,
non-qualified financial property does not
include a reasonable amount of cash,
cash equivalents, or debt instruments
with a term of 18 months or less. QOZ
businesses may utilize a safe harbor for
their working capital so long as there is
a written plan designating the
consumption of the working capital and
the working capital is spent according to
that plan. Tangible property may benefit
from multiple working capital safe
harbors, for a total of 62 months, in the
form of multiple overlapping or
sequential periods, provided each
application satisfies the working capital
safe harbor requirements.

Working capital assets during
working capital safe harbor period.
During the working capital safe harbor
period, working capital assets are not
treated as QOZ business property for
purposes of the 70% tangible property
standard applicable to QOZ businesses.
Working capital assets that have not
been expended are not treated as QOZ
business property. As stated earlier, in
Definitions, Property undergoing
substantial improvement is treated as
-3-

A corporation or partnership that is
organized and operated as a QOF must
file Form 8996 annually with one of the
following tax returns, as applicable.
• Form 1120, U.S. Corporation Income
Tax Return.
• Form 1120-F, U.S. Income Tax
Return of a Foreign Corporation. A QOF
organized in a U.S. possession is
eligible to attach Form 8996 to its Form
1120-F.
• Form 1120-REIT, U.S. Income Tax
Return for Real Estate Investment
Trusts.
• Form 1120-RIC, U.S. Income Tax
Return for Regulated Investment
Companies.
• Form 1120-S, U.S. Income Tax
Return for an S Corporation.
• Form 1065, U.S. Return of
Partnership Income.
You must file Form 8996 by the due
date of the tax return (including
extensions).
If a corporation or partnership
completes this form, it’s
CAUTION self-certifying that it’s a QOF. By
self-certifying, the QOF is attesting that
the property used to satisfy the 90%
investment standard is QOZ property.
This includes the requirement that any
stock or partnership interests used to
satisfy the 90% investment standard are
in an entity that satisfies section
1400Z-2(d)(3) (that is, that the entity is a
QOZ business). The information
provided to the QOF regarding whether
the entity satisfies section 1400Z-2(d)
(3) must be sufficient for the QOF to rely
on that information. If the entity doesn’t
satisfy section 1400Z-2(d)(3), the QOF
may be subject to penalties.

!

QOFs That Are Part of a
Consolidated Group

A consolidated group should include
with the group's return a separate Form
8996 for each group member that must
certify its QOF status.

Specific Instructions

applies to pre-existing corporations or
partnerships that become a QOF.

Name and Employer
Identification Number

Example 3. The facts are the same
as in Example 2, except that the
corporation is formed on July 1, 2021,
for the purpose of operating as a QOF.
The corporation may only choose a
month after July 1, 2021, as its first
month of certification. Any investments
made prior to July 1, 2021, will not be
qualifying investments.

Enter the same information as shown on
the QOF’s applicable tax return under
Who Must File, earlier.

Applicable financial statement
valuation method. If the applicable
financial statement method is used,
then the value of each item of property
owned or leased by the QOF is the
value of that asset as reported on the
QOF’s applicable financial statement.
This method can be used to value a
leased asset only if the applicable
financial statement is prepared in
accordance with U.S. GAAP, and the
statement assigns a value to the leased
asset.

DRAFT AS OF
November 8, 2021

Part I

Complete Part I annually and attach it to
your applicable tax return listed under
Who Must File, earlier. Part I is used to
certify that the corporation or
partnership was organized to operate as
a QOF. See Definitions, earlier.

Line 2

If you checked “Yes,” you are
self-certifying that you are a QOF and
you must complete the entire form. If
you checked “No,” don’t complete this
form and don’t file it with your return.

If you answer “Yes” on line 2,
then by the end of your first
CAUTION QOF year, the organizing
documents should include a description
of the trade(s) or business(es) that the
QOF expects to engage in, either
directly or indirectly through a first-tier
operating entity (QOZ business).

!

Line 3

Check “Yes” if you are certifying that this
is the first period in which you are a
QOF and fill out line 4.

If you check “No,” you are indicating
that you have certified in a prior year
that you are a QOF.
Regardless of whether you check
“Yes” or “No” on line 3, continue to Part
II and Part III to determine if the QOF
met the investment standard for this tax
year.

Line 4

Provide the first month in which you
chose to be a QOF. This month cannot
be any earlier than the month in which
the entity forms.
Example 2. A new corporation is
formed on January 5, 2021, for the
purpose of operating a QOF, but it
doesn’t receive any investment under a
deferral election under section
1400Z-2(a) until May 1, 2021. The
corporation may choose any month
from January through May to use as a
certification date. If the corporation
chooses any month from January
through May 2021 to use as a
certification date, a May 1 investment
can support a deferral election under
section 1400Z-2(a). This example also

Note. A QOF may receive an
investment relating to an investor’s
deferral election in the first month that
the QOF is certified but not in any earlier
month.

Line 5

If you checked “Yes,” you must attach a
statement to your return that includes
each investor’s name(s), Taxpayer
Identification Number(s), the date of the
disposition and the interest that they
disposed of. Also see the Instructions
for Form 1099-B for reporting
information.

Line 6

Do not check this box. Skip this line.

Part II

Complete Part II annually and attach
Form 8996 to your applicable tax return
listed under Who Must File, earlier. Part
II determines whether you meet the 90%
investment standard for a QOF. See
Definitions, earlier.
Value determination. Regulations
section 1.1400Z2(d)-1(b) provides
general and special rules for
determining the value of your owned or
leased assets for purposes of
determining whether you meet the 90%
investment standard for a QOF. The
general rules allow the value of your
assets to be determined using one of
the following two valuation methods
consistently during the tax year. Special
rules may allow you to exclude recently
contributed property from both the
numerator and the denominator of the
90% investment standard test on a
particular testing date, or to similarly
exclude inventory property on each
testing date, during the tax year.
Note. If you exclude recently
contributed property from both the
numerator and the denominator of the
90% investment standard on a particular
testing date, don’t include such property
in the penalty calculation for the months
such property was excluded if a penalty
calculation is applicable.

-4-

Alternative valuation method. If
the alternative valuation method is used,
then the value of each item of property
purchased or constructed by the QOF
for fair market value is the QOF’s
unadjusted basis of the asset under
section 1012 or 1013. The value of each
item of property owned by the QOF that
isn’t purchased or constructed for fair
market value is the item of property’s
fair market value, determined on the last
day of the first 6-month period of the
taxable year and on the last day of the
taxable year.
The value of each item of property
leased by the QOF under the alternative
valuation method is the present value,
determined as of the date of entering
into the lease, of the payments under
the lease. The required discount rate for
calculating the present value is provided
in Regulations section 1.1400Z2(d)-1(b)
(4)(iii)(B). Once calculated, the present
value is used as the value for the
property for all testing dates during the
term of the lease for purposes of the
90% investment standard.

Line 7

Enter the value of QOZ property (see
Definitions, earlier) held by the QOF on
the last day of the first 6-month period of
the tax year. This is the amount from
Part VI, line 2. See discussion under
Total assets, earlier in Definitions,
regarding certain property that may
optionally be excluded from lines 7 and
8.

Special rule for first year of QOF. If
you answered “Yes” on line 3, the
6-month period starts with the month
you indicated on line 4. Lines 7 through
9 may be blank depending on the tax
year and the month indicated on line 4.
See Example 4.
If you check “Yes” on line 3, but
don’t list the first month in which
CAUTION you choose to be a QOF on
line 4, the 6-month period of the QOF
starts on the first day of your tax year,
even if you received no investment

!

Instructions for Form 8996 (Jan. 2021)

relating to an investor’s deferral election
until later in the year.

certain property that may optionally be
excluded from lines 10 and 11.

Example 3. Virginia, Joe, Laura,
and Ishmael formed a new partnership
in January 2021 for the purposes of
operating as a QOF. It chooses April
2021 as its first month for certification.
The first 6-month period for the QOF
asset test ends on September 30.
January to March are not considered for
purposes of the 6-month period.

Note. If you answered “Yes” on line 3,
the tax year may be less than 12
months.

Line 11

Enter the value of the Total assets held
by the QOF on the last day of the tax
year.

you a notice regarding the penalty
reported on line 15. This notice will
include instructions on the penalty, the
reasonable cause relief process, and
payment instructions. To see if you
qualify for the automatic penalty relief,
see Penalty relief, under Part IV, later.
Regardless of whether you checked
“Yes” or “No” on line 15, complete Parts
V, VI, and VII.

DRAFT AS OF
November 8, 2021

Example 4. The facts are the same
as in Example 3, except the partnership
chooses July 2021 as the certification
date. The first 6-month period for the
QOF assets ends on December 31. The
6 months from January through June
are not considered, and lines 7 through
9 will be blank.

Line 8

Enter the value of Total assets held by
the QOF on the last day of the first
6-month period of the tax year.

Line 9

Divide the number on line 7 by the
number on line 8. Enter the result on
line 9 as a decimal to two places. Round
the number up or down to two places if
necessary. For third place numbers of 5
or more, round up to the next higher
second place number. For third place
numbers of less than 5, round down to
the lower second place number. Enter
the decimal using the following format:
one digit, a decimal point, and two digits
(for example, enter 92% as 0.92 and
100% as 1.00).
Example 5. The facts are the same
as in Example 3. The value of the QOZ
property held by the partnership on
September 30 and reflected on Part VI,
line 2, is $89,500. The value of the total
assets held by the partnership on
September 30 is $100,000. The
partnership enters “89,500” from Part VI,
line 2, on line 7 and “100,000” on line 8.
The result when the partnership divides
89,500 by 100,000 is 0.895. The
partnership rounds up to 0.90. On line 9,
the partnership enters “0.90.”
If the figure entered on line 9 is less
than 90% (0.90), a penalty may apply.
See Part III of the instructions for more
details. Enter -0- if lines 7 and 8 are
blank.

Line 10

Enter the value of QOZ property (see
Definitions, earlier) held by the QOF on
the last day of the tax year. This is the
amount from Part VI, line 3. See Total
assets, earlier in Definitions, regarding

Instructions for Form 8996 (Jan. 2021)

Note. If you checked “Yes” on line 3,
the tax year may be less than 12
months.

Line 12

Divide the number on line 10 by the
number on line 11. Enter the result on
line 12 as a decimal to two places.
Round the number up or down to two
places if necessary. For third place
numbers of 5 or more, round up to the
next higher second place number. For
third place numbers of less than 5,
round down to the lower second place
number. See Example 5. Enter the
decimal using the following format: one
digit, a decimal point, and two digits (for
example, enter 92% as 0.92 and 100%
as 1.00).
If the figure entered on line 12 is less
than 90% (0.90), a penalty may apply.
See Part III of the instructions for more
details.

Part III

Complete Part III annually and attach
Form 8996 to your applicable tax return
listed under Who Must File, earlier. Part
III determines whether you are subject
to a penalty. See Qualified opportunity
fund in Definitions, earlier.

Line 13

Add the numbers on lines 9 and 12.

Line 14

If lines 7 though 9 are blank, then enter
the result from line 13, otherwise divide
line 13 by 2.0. Enter the result on line 14
as a decimal to two places.
Note. If you answered “Yes” on line 3,
the tax year may be less than 12
months.

Line 15

If you checked “Yes,” the QOF met the
90% investment standard. Attach the
form to your tax return to report you met
the investment standard for the tax year.
If you checked “No,” the QOF failed
to meet the 90% investment standard.
Go to Part IV to figure the penalty for
each month the QOF didn’t satisfy that
investment standard. The IRS will send
-5-

Part IV

Complete Part IV if you checked “No” on
Part III, line 15. Use Part IV to figure the
penalty for each month that the QOF
didn’t hold at least 90% of its assets in
QOZ property. See Definitions, earlier.
Penalty relief. Penalty relief has been
provided for QOFs impacted by the
Coronavirus disease. The failure to
satisfy the 90% investment standard is
due to reasonable cause for any QOF
whose last day of the first 6-month
period of the tax year or the last day of
the tax year falls between April 1, 2020
through March 31, 2021. To obtain this
relief, you must complete all lines on the
Form 8996 and enter -0- on Part IV,
line 8. You must also file Form 8996 with
your timely filed federal income tax
return (including extensions).
Accounting period. Columns (a)
through (l) in Part IV assume that you
were a QOF for the full tax year
(January to December for calendar year
or 12 consecutive months for fiscal
year). See Pub. 538, Accounting
Periods and Methods, for more
information on accounting periods.
If you answered “Yes” on Part I,
line 3, and you weren’t a QOF
CAUTION for the full tax year, you won’t
use all of the columns in Part IV.
Instead, use the month listed on Part I,
line 4, as your Month 1 (see column (a)
of Part IV of the form), and continue
using the other columns as needed to
complete the tax year.

!

Example 6. The facts are the same
as in Example 3 under Part II
instructions, earlier. In that situation, the
partnership entered April on Part I,
line 4. Assume the answer to Part III,
line 15, is “No.” When filling out Part IV,
the partnership enters months only in
columns (a) through (i), because April
would be Month 1 and December would
be Month 9.

Lines 1 and 3

See Value determination, in Part II
earlier, for information on what figure to
enter on these lines.

Line 5

The figure to enter here is the interest
rate for each calendar quarter, which
the IRS will determine during the first
month in the preceding quarter. These
rates are published quarterly in an IRS
news release and in a revenue ruling in
the Internal Revenue Bulletin (IRB). Go
to IRS.gov/IRB for the IRBs. You can
subscribe to IRS Newswire to receive
news releases of the quarterly interest
rates, and IRS GuideWire to receive
emails with a link to the revenue rulings
in which the quarterly interest rates are
published by going to IRS.gov/uac/ENews-Subscriptions-2.

the 6-month period starts with the month
you indicated on Part I, line 4. Columns
(b) and (c) may be blank depending on
the tax year and the month indicated on
Part I, line 4. See Examples 3 and 4
under Part II, line 7, earlier.
If you check “Yes” on Part I,
line 3, but don’t list the first
CAUTION month in which you choose to
be a QOF on Part I, line 4, the 6-month
period of the QOF starts on the first day
of your tax year, even if the QOF
received no investment relating to an
investor’s deferral election until later in
the year.

!

last day of the tax year, enter the
11-digit QOZ number for each QOZ in
which the tangible property of the QOZ
business is located. If you invested in
more than one QOZ business in a
particular QOZ, you should repeat a
QOZ as many times as you need to
capture each stock or partnership
interest the QOF holds in that QOZ.

DRAFT AS OF
November 8, 2021

Line 7

Divide line 6 by 12 even if you answered
“Yes” in Part I, line 3, and you weren’t a
QOF for the full tax year. This is
because the underpayment rate used
on line 5 is annualized.

Part V

Complete Part V annually and attach
Form 8996 to your applicable tax return
listed under Who Must File, earlier. Part
V is for QOZ business property that you
directly owned or leased. See QOZ
business property in Definitions, earlier.
See IRS.gov/Ozfaqs page on
TIP IRS.gov for more information
and guidance.

Column (a)

Use a separate line to enter the 11-digit
QOZ number in which the QOF directly
owns or leases QOZ business property.
These QOZ numbers are listed in Notice
2018-48 and Notice 2019-42. You can
find Notice 2018-48 at IRS.gov/IRB/
2018-28_IRB#NOT-2018-48. Notice
2019-42 can be found at IRS.gov/IRB/
2019-29_IRB#NOT-2019-42.

Columns (b) and (c)

For QOZ business property held directly
on the last day of the first 6-month
period of the tax year, enter the total
value of all owned property in column
(b) and the total value of all leased
property in column (c), for the QOZ
indicated in column (a). See Value
determination, in Part II earlier, for more
information on what amount to enter on
these lines.
Mobile tangible property used in
multiple QOZs. See Mobile tangible
property used in QOZs and non-QOZs,
and Examples 9 and 10 in Part VI
instructions, later.
Special rule for first year as a QOF.
If you answered “Yes” on Part I, line 3,

Columns (d) and (e)

For QOZ business property held directly
on the last day of the tax year, enter the
total value of all owned property in
column (d) and the total value of all
leased property in column (e) for the
QOZ indicated in column (a). See Value
determination, in Part II earlier, for
information on what amounts to enter on
these lines.

Line 1

If you directly owned or leased QOZ
business property located in more than
the QOZs listed in column (a) for Part V,
then attach a separate statement. The
separate statement should be prepared
in the same manner and format as Part
V. Enter the totals from the separate
statement on line 1, columns (b) through
(e). Submit the separate statement with
Form 8996 and your tax return.

Part VI

Complete Part VI annually and attach
Form 8996 to your applicable tax return
listed under Who Must File, earlier. Use
Part VI to report investments in QOZ
stock or partnership interests with
values apportioned to QOZs and
non-QOZs based on where the tangible
property of the QOZ business is
located. See QOZ stock and QOZ
partnership interest in Definitions,
earlier.
Working capital property. For
property that is treated as QOZ
business property pursuant to the
working capital safe harbor rules,
allocate the value to the QOZ that’s
specified in the written designation for
the development of a trade or business
required under the regulations.

Non-QOZs. Indicate non-QOZs by
99999999999. If the QOZ business
holds any tangible property that isn’t
QOZ business property, including
property located in a non-QOZ, add an
additional line for that EIN with the
identifier “99999999999” instead of an
11-digit QOZ number. A separate
99999999999 line should be used for
each QOZ business that holds tangible
property that isn’t QOZ business
property.
Example 7. QOZ business X
operates in QOZs A, B, and C. QOZ
business Y operates in QOZs A and B.
Report QOZs A, B, and C for QOZ
business X on separate lines, followed
by QOZs A and B for QOZ business Y
on separate lines.

Column (b)

Enter the EIN of the QOZ business. If
the QOZ business you invested in
operates in more than one QOZ,
complete column (b) for each line
necessary.

Column (c)

For each QOZ stock or partnership
interest held on the last day of the first
6-month period of the tax year, enter in
column (c) the investment value of that
interest on that date. See Investment
value in Definitions, earlier. Apportion
that value according to the share of
tangible property of the QOZ business
located in each QOZ. See Examples 8,
9, and 10 later.

Property in multiple zones.
Example 8 shows how to account for
your interest in a QOZ business when
that QOZ business holds tangible
property in QOZs and non-QOZs. All
tangible property that is not QOZ
business property is assigned to the
non-qualifying line (99999999999) for
that QOZ business, even if the property
is located in a QOZ.

QOZs. For each QOZ business in
which you own a stock or a partnership
interest on either the last day of the first
6-month period of the tax year or the

Example 8. On the last day of the
first 6-month period of the tax year, QOF
A owns a $1 million interest in QOZ
business B. QOZ business B holds $4
million of tangible property and operates
in QOZs and non-QOZs. $2 million of
QOZ business B’s tangible property is
located in QOZ X, $1 million is located

-6-

Instructions for Form 8996 (Jan. 2021)

Column (a)

in QOZ Y, and $1 million is located in
multiple non-QOZs. All of the tangible
property of QOZ business B located in
QOZ X and QOZ Y is QOZ business
property. Of the tangible property of
QOZ business B, 50% is located in
QOZ X, 25% is located in QOZ Y, and
25% is located in multiple non-QOZs.
QOF A should report the location of its
$1 million interest in QOZ business B
according to the share of tangible
property of QOZ business B that is
located in each QOZ, by treating each
QOZ separately and treating all
non-QOZs as one aggregated
non-QOZ. Therefore, QOF A would
enter an investment value of $500,000
in QOZ X, $250,000 in QOZ Y, and
$250,000 in the aggregated non-QOZ
(99999999999).

million of which is stationary and located
in QOZ Y, and $1 million of which is
stationary and located in multiple
non-QOZs. The remaining $800,000 is
mobile tangible property. QOZ business
B has its main headquarters in QOZ X,
and that location is treated as a QOZ
office. In addition, the mobile tangible
property is returned from non-QOZs to
QOZs X and Y on a daily basis.
Because not more than 20% of QOZ
business B’s tangible property is mobile
tangible property, the entire $800,000 is
counted towards the QOZ business B’s
QOZ business property. The location of
the mobile tangible property is assigned
to the QOZ office located in QOZ X, for
a total of $2 million in QOZ business
property in QOZ X (50% of the total
tangible property). QOF A reports an
investment value of $500,000 in QOZ X,
$250,000 in QOZ Y, and $250,000 in
non-QOZs (99999999999).

If you check “Yes” on Part I,
line 3, but don’t list the first
CAUTION month in which you choose to
be a QOF on Part I, line 4, the 6-month
period of the QOF starts on the first day
of your tax year, even if the QOF
received no investment relating to an
investor’s deferral election until later in
the year.

!

DRAFT AS OF
November 8, 2021

Mobile tangible property used in
QOZs and non-QOZs. If mobile
tangible property is used in QOZs and
non-QOZs and otherwise qualifies as
QOZ business property, assign the full
value of that property to the QOZ where
it’s primarily used, that is, to the QOZ
that receives the highest percentage of
use. If tangible property is used in one
or more QOZs, determine whether the
property has been substantially used in
a QOZ (that’s at least 70% of its use) by
aggregating the number of days the
tangible property in each QOZ is
utilized. See Example 10 later.
Under a safe harbor, a limited
amount of mobile tangible property may
be excluded from the general
time-of-use calculation. Specifically, not
more than 20% of the tangible property
may be treated as satisfying the 70%
use test if the tangible property is
utilized in activities both inside and
outside of a QOZ and meets the
following requirements.
1. The trade or business has an
office or fixed location within a QOZ
(QOZ office).
2. The tangible property is operated
by employees of the business who
regularly use that QOZ office.
3. The employees are managed
directly, actively, and substantially by
employees located in the QOZ office.
4. The property isn’t operated
outside a QOZ for a period longer than
14 consecutive days.
See Example 9 for an illustration of this
rule.

Example 9. QOF A owns a $1
million interest in QOZ business B. QOZ
business B owns $4 million of tangible
property, $1.2 million of which is
stationary and located in QOZ X, $1
Instructions for Form 8996 (Jan. 2021)

Example 10. QOF A owns a $2
million interest in QOZ business B. QOZ
business B owns $4 million of tangible
property, $1.2 million of which is
stationary and located in QOZ X, $1
million of which is stationary and located
in QOZ Y, and $1 million of which is
stationary and located in non-QOZs.
The remaining $800,000 is mobile
tangible property. Unlike in Example 9,
a safe harbor doesn’t apply. The mobile
tangible property is used during 50% of
all days in QOZ X, 25% of all days in
QOZ Y, and 25% of all days in
non-QOZs. Because at least 70% of the
use of the mobile tangible property is
located within a QOZ, the entire
$800,000 is counted towards QOZ
business B’s QOZ business property.
The full value of the mobile tangible
property is assigned to QOZ X, as that
is the QOZ where the property is
primarily used. The total amount of QOZ
business property located in QOZ X,
stationary plus mobile, is $2 million,
which is 50% of QOZ business B’s
tangible property. Therefore, QOF A
reports an investment value of
$1,000,000 in QOZ X, $500,000 in QOZ
Y, and $500,000 in non-QOZs
(99999999999).
Special rule for first-year QOF. If you
answered “Yes” on Part I, line 3, the
6-month period starts from the month
you indicated on Part I, line 4. Columns
(c) through (e) may be blank depending
on the tax year and the month you
indicated on Part I, line 4. See
Examples 3 and 4 under Part II, line 7,
earlier.

-7-

Columns (d) and (e)

For each QOZ stock or partnership
interest held on the last day of the first
6-month period of the tax year, enter the
gross value of tangible property that is
owned and leased by the QOZ
business, for each QOZ. (Don’t adjust
for ownership share or leveraged
assets. All QOFs investing in the same
QOZ business should report identical
values for these columns.)
Example 11. The facts are the same
as in Example 8 under Part VI, column
(c) instructions, earlier. In addition, QOZ
business B has the following shares of
owned and leased tangible property.
QOZ business B owns 70% of its $2
million in tangible property located in
QOZ X and leases the other 30%, owns
60% of its $1 million in tangible property
located in QOZ Y and leases the other
40%, and owns 50% of its $1 million in
tangible property located in non-QOZs,
and leases the other 50%. QOF A
should enter the following values for
QOZ X; $1,400,000 in column (d) and
$600,000 in column (e). For QOZ Y,
enter $600,000 in column (d) and
$400,000 in column (e), and for
non-QOZs, $500,000 in column (d), and
$500,000 in column (e).

Column (f)

For each QOZ stock or QOZ
partnership interest held on the last day
of the tax year, enter in column (f) the
investment value of that interest on that
date. See Investment value in
Definitions, earlier. Apportion that value
according to the share of tangible
property of the QOZ business located in
each QOZ.
See Examples 8, 9, and 10 under
instructions for column (c).

Columns (g) and (h)

For each QOZ business held on the last
day of the tax year, enter the gross
value of tangible property that is owned
and leased by the QOZ business, for
each QOZ. (Don’t adjust for ownership
share or leveraged assets. All QOFs
investing in the same QOZ business
should report identical values for these
columns.)

See Example 11 under the
instructions for Columns (d) and (e),
earlier.

Line 1

Enter the amounts reported on Part VII,
line 2, columns (c) and (f), on Part VI,
line 1, columns (c) and (f), respectively.
If you complete more than one Part VII,
add up all of the amounts from Part VII,
lines 2, column (c) and enter on Part VI,
line 1, column (c). Similarly, if you
complete more than one Part VII, add
up all the amounts from Part VII, line 2,
column (f), and enter on Part VI, line 1,
column (f).

value of the property listed on this form,
check either the “Applicable financial
statement valuation method” box or the
“Alternative valuation method” box. See
Value determination in Part II, earlier.

Part VII

Complete Part VII only if you need
additional lines to report your
investments in QOZ business(es) that
have locations in more than the QOZs
listed in Part VI. For information on how
to complete columns (a) through (h),
refer to the instructions under Part VI for
columns (a) through (h), earlier.

these laws and to allow us to figure and
collect the right amount of tax.
You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB
control number. Books or records
relating to a form or its instructions must
be retained as long as their contents
may become material in the
administration of any Internal Revenue
law. Generally, tax returns and return
information are confidential, as required
by Code section 6103.

DRAFT AS OF
November 8, 2021

Line 2

To figure the value of QOZ property
held by the QOF on the last day of the
first 6-month period of the tax year, add
Part V, columns (b) and (c), and Part VI,
column (c). Enter the total here and on
Part II, line 7.

Line 3

To figure the value of QOZ property
held by the QOF on the last day of the
tax year, add Part V, columns (d) and
(e), and Part VI, column (f). Enter the
total here and on Part II, line 10.

Line 4

Depending on which type of accounting
method you are using to determine the

Line 1

Total columns (c) and (f) respectively. If
you complete more than one Part VII,
add up all of the amounts from Part VII,
column (c) and (f) respectively and
enter on line 1.

Line 2

Add columns (c) and (f). Enter the total
here and on Part VI, line 1, columns (c)
and (f), respectively.

The average time and expense
required to complete and file this form
will vary depending on individual
circumstances. For the estimated
averages, see the instructions for your
income tax return.

If you have suggestions for making
this form simpler, we would be happy to
hear from you. See the instructions for
your income tax return.

Paperwork Reduction Act Notice.
We ask for the information on this form
to carry out the Internal Revenue laws of
the United States. You are required to
give us the information. We need it to
ensure that you are complying with

-8-

Instructions for Form 8996 (Jan. 2021)