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OZ Data Centers™

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Managing a data center QOZB

Managing a data center Qualified Opportunity Zone Business means passing the same tests every testing date for a decade or more: at least 70% of tangible property qualifying, at least 50% of gross income from the active business in the zone, at least 40% of intangibles used there, and less than 5% nonqualified financial property. It also means keeping the working capital plan current, replacing short-lived equipment with qualifying property, running the facility actively rather than as a passive triple-net lease, and preparing for new QOF and QOZB reporting that carries penalties of $500 per day.

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Key takeaways

  • A QOZB must have at least 70% of its owned or leased tangible property qualify, earn at least 50% of gross income from the active business in the zone, use at least 40% of intangibles there and hold under 5% nonqualified financial property.
  • The parent QOF must hold at least 90% of its assets in Opportunity Zone property, averaged over two semiannual testing dates.
  • Cash held for construction must follow a written working capital plan for up to 31 months per plan, and up to 62 months with overlapping plans.
  • New IRC §6039K and §6039L reporting carries a §6726 penalty of $500 per day, capped at $10,000 per return or $50,000 for funds with gross assets over $10 million; the implementing regulations are proposed, not final.
  • A QOZB that fails the 70% test has a one-time six-month cure period, according to practitioner commentary.

What does managing a data center QOZB involve?

Running the facility as an active business while proving, on every testing date, that it still meets the Opportunity Zone tests. A Qualified Opportunity Zone Business (QOZB) is the operating company, owned by a Qualified Opportunity Fund (QOF), that holds the land, building and plant.1 If the QOZB fails, the QOF's interest in it stops counting toward the fund's 90% asset test, and the fund can owe a monthly penalty.5

A data center adds specific pressures: a long build that tests the working capital safe harbor, short-lived equipment that must be replaced over a 10-year hold, and leases that must not reduce the business to a passive triple-net landlord. For the basics, see what is a Qualified Opportunity Zone Business.

Which tests must a data center QOZB pass?

Five numerical tests and two qualitative ones, applied at the QOF's testing dates.

Fig. 1The Opportunity Zone tests a data center QOZB and its QOF must pass

  • QOF: Opportunity Zone propertyAt least 90%
    0%100%

    Average of two semiannual testing dates

  • QOZB: qualifying tangible propertyAt least 70%
    0%100%

    Of tangible property owned or leased

  • QOZB: gross income from active business in the zoneAt least 50%
    0%100%

    Four safe harbors available

  • QOZB: intangibles used in the zoneAt least 40%
    0%100%

    A substantial portion of intangible property

  • QOZB: nonqualified financial propertyNo more than 5%
    0%100%

    Less than 5% of average unadjusted basis

Minimums except nonqualified financial property, which is a maximum. Working capital within the safe harbor does not count as nonqualified financial property.1,2,3
  • Active trade or business: merely entering into a triple-net lease is not the active conduct of a trade or business.1 See data center lease structures in Opportunity Zones.
  • Not a sin business: the QOZB may not be a 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 use.13 Data centers are not on the list.

Qualifying tangible property must be acquired by purchase from an unrelated party, meet original use or substantial improvement, and be used in a zone during substantially all (90%) of the holding period.2 See the QOZB 70% tangible property test and gross income, intangibles and financial property tests.

How should a QOZB manage its working capital safe harbor?

As a living document tied to the construction budget. Cash counts as reasonable working capital for up to 31 months if it is designated in writing for acquiring, constructing or substantially improving tangible property in the zone, covered by a written schedule consistent with ordinary start-up spending, and spent substantially as planned. Overlapping or sequential plans can extend the period to 62 months from the first cash infusion.4

  • Adopt the written plan before or when cash arrives, not after.
  • Reconcile spending to the schedule at least at every testing date.
  • Record reasons for delays, especially government permitting delays on completed applications, which can toll the period.
  • Do not assume a utility's queue tolls the period; no guidance says it does.

Treasury asked in Notice 2026-55 whether a QOZB should be allowed to modify an existing plan; comments are due November 23, 2026, so this rule may change.12 See the working capital safe harbor.

When are the tests measured and reported?

Twice a year for the fund, and every year on the forms. The QOF tests its 90% standard on the last day of the first six months of its taxable year and on the last day of the taxable year, and averages the two.5 For a calendar-year fund, that is June 30 and December 31. The QOF certifies and reports on Form 8996 with its return every year; investors report their holdings on Form 8997.10,14

Fig. 2An annual compliance calendar for a calendar-year QOF and its data center QOZB

  1. Quarterly

    Working capital reconciliation

    Spending compared with the written schedule

  2. Jun 30

    First testing date

    QOF 90% test; QOZB 70%, 50%, 40% and 5% tests

  3. Dec 31

    Second testing date

    Year-end asset values and income

  4. Q1

    QOZB data to the QOF

    Asset values, tract, employees and other data

  5. Return date

    Form 8996 filed

    Self-certification and 90% computation

  6. Investor returns

    Form 8997 filed

    Each investor reports QOF holdings

Illustrative calendar based on the semiannual testing dates. Return due dates depend on the entity type and extensions; the proposed regulations would make Form 8996 a separate information return.5,8

What are the new QOF and QOZB reporting requirements?

Public Law 119-21 added annual information reporting for QOFs (IRC §6039K) and QOZB-level information (§6039L), with penalties. Proposed regulations published September 11, 2026 would make Form 8996 a separate information return, require census-tract-level reporting and collect information about each applicable QOZB; they are not final.8,11

Penalties under IRC §6726 for failing to report
SituationPer-day penaltyCap per return
Standard failure$500$10,000
Standard failure, QOF with gross assets over $10 million$500$50,000
Intentional disregard$2,500$50,000
Intentional disregard, large QOF$2,500$250,000

Commentary on the proposal lists NAICS codes, census tracts and employee counts among the QOZB items to be reported; confirm the final list when the rules are adopted.11 RSM reports the penalty applies to taxable years beginning after the date of enactment.9 See Opportunity Zone reporting requirements and penalties.

How should a data center QOZB handle equipment replacement and operations?

Plan replacements as qualifying purchases and keep the operating staff that make the business active. Servers depreciate over about five to six years in hyperscaler filings, so equipment the QOZB owns will turn over during a 10-year hold. Each replacement must be bought from an unrelated party and placed in service in the zone to count as qualifying property.

  • Proceeds at the QOF level: a QOF has 12 months to reinvest proceeds from selling qualified property before they count against the 90% test, holding them in cash, cash equivalents or short-term debt in the meantime. This relief is for the asset test only and does not defer gain.7
  • Gain on equipment sold before year 10 is not covered by the 10-year exclusion.
  • Cure period: a QOZB that fails the 70% test has a one-time six-month period to cure, according to practitioner commentary.6
  • Operations: keep on-site staff in real operating roles and document what they do; that record supports the active business position.

For equipment rules in detail, see servers, equipment and the Opportunity Zone rules.

Who should manage a data center QOZB's compliance?

Someone who sits between the operators, the accountants and the fund. Compliance failures in OZ projects are usually documentation failures: a missing working capital plan, an asset register that does not show acquisition dates and sellers, or a lease that does not match operations. OZ Data Centers works with QOZB Management LLC, its partner for QOZB management and compliance, so that testing, records and reporting are handled alongside day-to-day operations.

Fig. 3Data center QOZB management health check

  • PassWritten working capital plan currentMatches the latest budget and schedule
  • PassAsset register with seller and date for each itemShows unrelated-party purchase and placed-in-service dates
  • WatchNonqualified financial property under 5%Excess cash outside the plan counts against the limit
  • WatchEquipment replacement planReplacements bought new from unrelated parties
  • WatchOperating staff and services documentedSupports the active trade or business position
  • WatchReporting data ready for §6039LTract, employees and asset data collected each year
Items marked watch are the most common data center problem areas. A fail on the working capital plan or the lease structure puts the whole QOZB at risk.4,1

Investors should ask for this evidence as part of Opportunity Zone fund due diligence and expect it in fund investor reporting.

Common questions

What happens if a data center QOZB fails the 70% tangible property test?

Practitioner commentary describes a one-time six-month cure period. If the failure is not cured, the QOF's interest in the QOZB stops counting toward the fund's 90% test, which can trigger a penalty at the fund level.

How often are the Opportunity Zone tests measured?

The QOF tests its 90% standard on two semiannual dates, the end of the first six months and the end of the taxable year. The QOZB's tests are applied on those same dates.

Do the new reporting penalties apply now?

IRC §6726 imposes $500 per day, capped at $10,000 per return or $50,000 for large funds. The implementing regulations published September 11, 2026 are proposed, not final, so the exact data items and applicability dates are pending.

Does replacing servers keep the QOZB compliant?

It can, if each replacement is bought from an unrelated party and placed in service in the zone. Gain on equipment sold before year 10 is not covered by the 10-year exclusion.

Can a QOZB change its working capital plan?

Plans must be followed substantially as written. Treasury's Notice 2026-55 asks whether modifications should be allowed, with comments due November 23, 2026, so the answer may change.

Sources

Every numbered note in this guide links to the source below.

  1. 1.Legal Information Institute, Cornell Law School, “26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses,” n.d. law.cornell.edu
  2. 2.National Law Review, “The QOZB Tangible Property Test,” n.d. natlawreview.com
  3. 3.Orrick, “Final Tax Regulations Offer More Certainty to Opportunity Zone Fund Managers and Investors,” 2020. orrick.com
  4. 4.ArentFox Schiff, “Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same,” 2020. afslaw.com
  5. 5.KPMG, “Qualified Opportunity Funds: Mid-2022 Asset Testing Considerations,” 2022. tax.kpmg.us
  6. 6.Hunton Andrews Kurth, “Qualified Opportunity Zone Investments: Overview,” n.d. hunton.com
  7. 7.Legal Information Institute, Cornell Law School, “26 CFR 1.1400Z2(f)-1, Administrative rules,” n.d. law.cornell.edu
  8. 8.Federal Register (GovInfo), “Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968,” 2026. govinfo.gov
  9. 9.RSM US, “New penalties for taxpayers in the One Big Beautiful Bill Act,” 2025. rsmus.com
  10. 10.Internal Revenue Service, “About Form 8996, Qualified Opportunity Fund,” n.d. irs.gov
  11. 11.EY Tax News, “Proposed regulations would expand Opportunity Zone reporting requirements and establish QOF decertification procedures,” 2026. taxnews.ey.com
  12. 12.Internal Revenue Service, “Notice 2026-55, Request for additional comments on issues under section 1400Z-2,” 2026. irs.gov
  13. 13.GovInfo (U.S. Code), “26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones,” n.d. govinfo.gov
  14. 14.Novogradac, “Interpreting and Completing OZ-Related Tax Forms,” n.d. novoco.com

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This website is for general information only. It is not an offer to sell, or a solicitation of an offer to buy, any security. Any offering will be made only through confidential offering documents, to eligible investors, where permitted by law. Opportunity Zone tax benefits depend on each investor's circumstances and on rules that can change; consult your own tax and legal advisers.