Are Public Benefit Corporations Eligible for Opportunity Zone Investments?

While investment opportunities used to include a limited selection of ways to pursue income, things have changed in the investment market over the years. In addition to various types of stocks and bonds, there are also dozens of different types of real estate investment options that investors can choose from. However, there are some restrictions on some of these options that make it difficult for certain types of entities to invest in specific real estate offerings. Qualified Opportunity Zones are one such example of specialized investment classes, one which many people wonder are open for investing from Public Benefits Corporations.

What is a Public Benefit Corporation?

A Public Benefit Corporation, also referred to as a PBC, is a type of for-profit entity that is recognized by the United States government. There are two important aspects of PBCs to remember. First, they are currently only recognized in 35 states and the District of Columbia. Second, there are certain requirements that a Public Benefit Corporation must meet in order to be considered as such. In addition to the PBC’s legally defined goals including generating a profit, the entity also must prove that they are working toward a goal of positively impacting society, workers, the community, the environment, or another area of public interest.

What is an Opportunity Zone?

Qualified Opportunity Zones are the result of legislation that was passed through a bipartisan effort in 2017. As a part of the Tax Cuts and Jobs Act of 2017, policymakers in Washington D.C. created something known as Qualified Opportunity Zones that would create jobs and other economic opportunities in areas that are considered undercapitalized. Additionally, these areas must meet certain criteria involving employment. The idea behind these Qualified Opportunity Zones, which are often referred to as QOZs, is to incentivize investors to put money into these areas in order to improve the economic standing of the community and to create jobs for its residents. These incentives generally include tax deferral opportunities and large tax breaks for investors who keep their money in the QOZ for a certain period of time.

Since the goal of Qualified Opportunity Zones is to create economic growth in otherwise low-income areas, policymakers made it simple for these zones to be created. In fact, any person or entity who files a federal income tax return is eligible to create a Qualified Opportunity Fund in an area that meets the criteria of a Qualified Opportunity Zone. Once the fund is created, investors can begin putting money into the area while seeking the tax benefits associated with doing so.

Can Public Benefit Corporations Get Qualified Opportunity Zone Funding?

The relationship between Public Benefit Corporations and Qualified Opportunity Zones is a tricky one, primarily because of how the two are allowed to interact. PBCs are considered B corporations by the IRS. Conversely, non-profit organizations are considered C corporations. Unfortunately, B corporations are not eligible to receive funding from Qualified Opportunity Zones. However, that does not mean that there are not ways for Public Benefit Corporations to enjoy some of the benefits of Qualified Opportunity Zones. According to the Federal Tax Code, any person or entity who files a federal income tax return is eligible to invest in QOZs. With that in mind, these for-profit corporations can invest a portion of their funds in QOZs to receive the tax incentives associated with doing so.

Qualified Opportunity Zones and Public Benefit Corporations are both tools that can positively impact communities. Understanding the investment rules that surround them and their interactions with one another is an important aspect of fully understanding how they work.