Limited Partners, Core QOF Members, and Interests (LPs)

Definition

Limited partners and core members are the passive investors who hold equity in a fund, including a qualified opportunity fund organized as a partnership^[1]; as partners they are taxed on their distributive shares of the fund's income and gains rather than the fund paying tax.^[2] Only the part of an investor's QOF interest funded with deferred capital gain receives the opportunity zone tax treatment; any other money invested is treated as a separate investment.^[1]

Federal law

Formed under state law. No Act of Congress creates it; the federal laws below apply to it as described.

1. Tax Cuts and Jobs Act (popular name), Pub. L. 115-97, § 13823, 131 Stat. 2183. 26 U.S.C. § 1400Z-2(d)(1), (e)(1): a QOF may be a partnership; investments with mixed funds are split, and opportunity zone benefits apply only to the gain-funded portion. Official text: govinfo.gov, U.S. Government Publishing Office.
2. Internal Revenue Code of 1954, Pub. L. 83-591, ch. 736, § 701, 68A Stat. 3, 239. Internal Revenue Code § 701: partners, not the partnership, are subject to income tax. Official text: govinfo.gov, U.S. Government Publishing Office.
3. Internal Revenue Code of 1954, Pub. L. 83-591, ch. 736, § 761, 68A Stat. 3, 252. Internal Revenue Code § 761(b): 'partner' means a member of a partnership. Official text: govinfo.gov, U.S. Government Publishing Office.

Federal regulations

Rules issued by federal agencies under the laws above.

4. Classification of certain business entities, 26 CFR 301.7701-3 (Internal Revenue Service (Department of the Treasury)). Treasury default rule: a domestic LLC with two or more members is a partnership for tax purposes, so LLC members are treated as partners. Official text: govinfo.gov, U.S. Government Publishing Office.