WORDEN

Donovan Worden, Sr. Ronald A. Bender Colleen M. Dowdall

(1892- 1967) Martin S. King Amy M. Scott Smith

THANE P.C.
Donovan Worden, Jr. W. Carl Mendenhall Jori Quinlan
(1918- 2001) Gail M. Haviland Jesse C. Kodadek
Jeremy G. Thane Shane A. Vannatta Chris A. Johnson (MT, WA)
(1927-2016) Peter S. Dayton Ross P. Keogh (MT, ND, WY)
ATTORNEYS AT LAW Sean M. Morris Dana L. Hupp
Reid J. Perkins Martin Rogers
William E. McCarthy Joel E. Henry
-. Established in 1924 Brand G. Boyar

Re: Using Opportunity Funds/Zones to Drive Efficient Capital Investment to Montana's Communities
From: Ross P. Keogh
Date: June 20, 2018

Background: The 2017 Tax Act added 26 USC§ 1400Z-1 and§ 1400Z-2. These provisions allow for a
taxpayer to defer gain for investments that are rolled over into an Opportunity Fund (an "OZ Fund") until

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12/31/2026 or the investment in the OZ Fund is sold. The deferral provisions apply to any capital gain
event, such as the sale of stock or real property.
Requirements for an OZ Fund: An OZ Fund must be a corporation or partnership, which owns
opportunity zone businesses or opportunity zone property ("OZ Assets"). Generally, that is tangible
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property, which is located in an Opportunity Zone ("OZ Zone"). To qualify, the basis of the property must
be doubled by investment through the OZ Fund within thirty months of acquisition of the property. Ninety
percent (90%) of the assets of the OZ Fund must be OZ Assets.
Tax Benefits to Partners/Members/Shareholders of OZ Funds:
In addition to deferral, an investor may receive a basis step-up when they realize their interest in the OZ
Fund. Investors which hold the OZ Fund for five (5) years receive a basis step-up of 10% of the original
basis. After seven (7) years, the step-up is 15%.
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An investor may elect to hold the investment for ten (10) years, in which case the basis will be the value of
the investment on the date sold or exchanged. This allows for the investor to avoid all gain on the OZ Fund
Investment. The following is an illustrative investment timeline:
• Q2 2018: Sell stock for $200,000 with a $100,000 basis.
• Q3 2018: Purchase partnership interest in OZ Fund for $100,000. Investor has $0 basis.
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• Q3 2023: Basis is stepped up to $10,000.

• Q3 2025: Basis is stepped up an additional $5,000 to $15,000.
• December 31, 2026: Investor required to realize $85k gain, needs to pay tax of approximately
$26,000 (the investor's marginal tax rate times $85,000).
• Q3 2028: Taxpayer elects to have basis equal sale price, and pays no tax on disposition. Taxpayer
likely saves $12,500 in tax (assuming $50k appreciation at a 30% capital gains tax rate).

Investors have 180 days to roll funds into an OZ Fund from the sale of the underlying capital asset. OZ
Funds will be most lucrative if closed before 12/30/2019 (allowing for seven (7) year basis step-up before
gain realization trigger on 12/31/2026).

321 West Broadway, Suite 300 I Missoula, MT 59802 I (406) 721-3400 I www.wordenthane.com m ���!!�·
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