KPMG article: Challenges faced by distressed QOZ businesses
An overview of the challenges faced by Qualified Opportunity Zone (QOZ) businesses amid financial distress
Congress in July 2025 revised the Qualified Opportunity Zone (QOZ) program and made it permanent with the passage of the One Big Beautiful Bill Act (Pub. L. No. 119-21). Initially enacted as part of the 2017 Tax Cuts and Jobs Act, the QOZ regime aims to stimulate investment in economically depressed areas by offering significant tax benefits to investors.
The QOZ program provides three main tax incentives: deferral of capital gains tax for qualified investments in qualified opportunity funds (QOFs), partial elimination of deferred gains through a basis step-up if the investment is held for a specified period, and tax-free appreciation for investments held for 10 years or more. However, these benefits are contingent on strict compliance with regulatory requirements, including self-certification of asset holdings and adherence to operational tests.
Despite its potential, the success of the QOZ program has been challenged by external factors such as the COVID-19 pandemic, geopolitical instability, and rising interest rates, which have impacted the financial performance of QOZ projects, particularly in real estate. The program's compliance regime requires QOFs to maintain substantial investments in qualified property and adhere to a rigid business structure, posing additional challenges for investors and operators.
Read an October 2025 report* prepared by KPMG tax professionals that discusses challenges faced by QOZ businesses subject to varying degrees of financial distress and the potential tax compliance traps for the unwary.
*This article appears in Tax Notes Federal (October 20, 2025) and is provided with permission.