QOZB gross income, intangibles and financial property tests

A Qualified Opportunity Zone Business (QOZB) must meet four more requirements, set by §1400Z-2(d)(3), which borrows three of them from the empowerment zone rules in §1397C.^1,2

The fourth requirement is that the business not be a sin business: a private or commercial golf course, country club, massage parlor, hot tub or suntan facility, racetrack or other gambling facility, or a store whose principal business is selling alcohol for off-premises consumption.¹ See businesses excluded from Opportunity Zones. For the property test, see the QOZB 70% tangible property test.

By showing that at least 50% of its gross income comes from the active conduct of a trade or business in a Qualified Opportunity Zone, using any one of three safe harbors or, failing those, the facts and circumstances.^2,4 The safe harbors test where the work happens, not where customers are.

Illustrative example of the hours safe harbor: a QOZB's employees and contractors log 40,000 hours of services in a year. Operations, security and maintenance staff at the zone facility account for 26,000 hours, and a finance and sales team in another state accounts for 14,000. In-zone hours are 65%, so the hours safe harbor is met even though a third of the work happens elsewhere.

A QOZB may use whichever safe harbor it meets for a year.^4,16 Income earned on working capital during a valid working capital safe harbor period is treated as income from the active conduct of the business, so a QOZB under construction is not failed by its interest income.^8,9

The regulations use the §162 definition of a trade or business, and they treat ownership and operation, including leasing, of real property as an active trade or business. The exception is a triple-net lease: merely entering into a triple-net lease with respect to real property owned by the business is not the active conduct of a trade or business.^3,10

The regulations illustrate the line. A landlord that leases an entire building to one tenant on a triple-net basis is not engaged in an active business, even with an on-site office handling lease issues. A landlord that leases part of a building on a triple-net basis and actively manages and operates the rest through on-site employees is.^10,11

A QOZB must use a “substantial portion” of its intangible property in the active conduct of its trade or business in the zone, and the final regulations define substantial portion as at least 40%.^5,3 Intangible property includes software licenses, customer contracts, trademarks, patents and similar rights.

For most real estate and infrastructure QOZBs, intangibles are small and the test is easy. It matters more for operating businesses that own valuable intellectual property used outside the zone, such as a software company with development teams elsewhere. During a working capital safe harbor period, intangibles purchased or developed with covered working capital are treated as used in the active conduct of the business.^8,6

Less than 5% of the average of the aggregate unadjusted bases of a QOZB's property may be nonqualified financial property (NQFP).^1,7 NQFP means debt, stock, partnership interests, options, futures contracts, forward contracts, warrants, notional principal contracts, annuities and similar property.

Two exclusions make the limit workable. Reasonable amounts of working capital held in cash, cash equivalents or debt instruments with a term of 18 months or less are not NQFP, and working capital covered by the safe harbor is treated as reasonable. Accounts or notes receivable acquired in the ordinary course of business for services or property sold are also excluded.^1,2,9

Whether a reserve is working capital or NQFP depends on what it is held for and how it is invested. Lender-required reserves in short-term instruments are often treated as working capital, but this is worth confirming with counsel for each financing.

An operating data center usually meets the 50% test through the tangible property and management safe harbor, because its revenue depends on the halls, power and cooling in the zone and on the operations team that runs them.^4,16 The harder question is upstream: whether a leasing structure is an active trade or business at all.

Notice 2026-55 asks for comments on rules for operating businesses, with comments due November 23, 2026; any changes would come through new proposed regulations.^13,14 For structure choices, see data center lease structures in Opportunity Zones, colocation data centers in Opportunity Zones and managing a data center QOZB. The QOZB cure period is a one-time, six-month relief, so monitor these tests at every testing date rather than relying on it.¹⁵