SECTION 2. BACKGROUND

.01 Sections 1400Z-1 and 1400Z-2 (1) Section 1400Z-1 . Section 1400Z-1 provides the procedural rules for the designation of QOZs, the related definitions, and the applicable period for which such designations remain in effect.

(2) Section 1400Z-2 . Section 1400Z-2 allows the deferral of inclusion in gross income for certain realized gains to the extent that corresponding amounts are timely invested in a corporation or partnership that meets the requirements to be certified as a qualified opportunity fund (QOF), as defined in § 1400Z-2(d)(1) and § 1.1400Z2(d)-1. If certain qualifications and holding period requirements are met, then (i) a portion of such deferred gains may be excluded from gross income, and (ii) gain on the taxpayer’s investment of such amounts in a QOF may be excludable from gross income.

.02 References to §§ 1400Z-1 and 1400Z-2 . All references hereinafter in this notice to “prior § 1400Z-1” and “prior § 1400Z-2” refer to §§ 1400Z-1 and 1400Z-2, as in effect after amendment of the Code by both § 13823 of Public Law 115-97, 131 Stat. 2054, 2183 (December 22, 2017), commonly known as the Tax Cuts and Jobs Act (TCJA), and by § 41115 of the Bipartisan Budget Act of 2018 (BBA 2018), Public Law 115-123, 132 Stat. 64, 161 (February 9, 2018), but prior to amendment by § 70421 of the OBBBA. All references in this notice to “§ 1400Z1” and “§ 1400Z-2” refer to §§ 1400Z-1 and 1400Z-2 as amended by § 70421 of the OBBBA.

.03 Definitions (1) Qualified Opportunity Zones . For purposes of §§ 1400Z-1 and 1400Z-2, § 1400Z-1(a) defines a QOZ as any population census tract that is a low-income community (LIC), as defined in § 1400Z1(c)(1), that is designated as a QOZ. This notice refers to a QOZ designated under prior § 1400Z-1 as a “previously designated QOZ.”

(2) Qualified Opportunity Fund . Section 1400Z-2(d)(1) provides that a QOF is an investment vehicle that is organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property (QOZP), other than another QOF, that holds at least 90 percent of its assets in QOZP as measured on the dates described in § 1400Z-2(d)(1)(A) and (B) (90-percent investment standard). See § 1.1400Z2(a)-1(b)(4).

(3) Qualified opportunity zone prop- erty . Section 1400Z-2(d)(2)(A) defines QOZP as property that is qualified opportunity zone stock (QOZ stock), qualified opportunity zone partnership interest (QOZ partnership interest), or qualified opportunity zone business property (QOZBP).

(a) Qualified opportunity zone stock . Effective for stock acquired on or before December 31, 2026, prior § 1400Z-2(d)(2) (B) and the regulations thereunder define QOZ stock as any stock in a domestic corporation if: (i) the stock was acquired by a QOF at its original issue from the corporation solely in exchange for cash after

1 Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax Regulations (26 CFR part 1).

Bulletin No. 2026–28 33 July 6, 2026

December 31, 2017, (ii) the original use of such property in the QOZ commences with the QOF or the QOF substantially improves the property, and (iii) during substantially all of the QOF’s holding period for such property, substantially all of the use of such property was in a QOZ. Effective for property acquired after December 31, 2026, § 70421(c)(4)(A) of the OBBBA amended prior § 1400Z2(d)(2)(D)(i)(I) by striking “December 31, 2017” at the end of the subclause and inserting “the applicable start date (as defined in § 1400Z-1(e)(2)) with respect to the [QOZ] described in” § 1400Z-2(d) (2)(D)(i)(III).

(4) Qualified opportunity zone busi- ness .

(a) In general . Section 1400Z-2(d)(3) (A) defines a QOZB as a trade or business in which substantially all of the tangible property owned or leased in connection with the trade or business is QOZBP. The trade or business must also satisfy the following requirements provided in § 1397C(b)(2), (4), and (8): (i) at least 50 percent of the total gross income of the entity must be derived from the active conduct of a trade or business in the QOZ; (ii) a substantial portion of the intangible property of such entity must be used in the active conduct of a trade or business in the QOZ; and (iii) less than five percent of the average of the aggregate unadjusted bases of the entity’s property must be attributable to nonqualified financial property. Finally, a QOZB may not be a trade or business described in § 144(c)(6)(B). See also § 1.1400Z2(d)-1(d)(3).

(b) 70-percent tangible property stan- dard . Section 1.1400Z2(d)-1(d)(1)(i) and (d)(2) clarify the “substantially all” requirement provided in § 1400Z-2(d)(3) (A)(i) regarding the amount of tangible property owned or leased by the taxpayer that is required to be QOZBP. Under the regulations, for an entity’s trade or business to satisfy the “substantially all” requirement, at least 70 percent (by value) of the tangible property owned or leased by the trade or business must be QOZBP.

(5) Applicable start date and effec- tive period . Section 70421(b)(2) of the OBBBA redesignated prior § 1400Z-1(f)

as § 1400Z-1(e), and § 70421(b)(3) of the OBBBA modified when a QOZ designation period begins and ends for QOZs designated under § 1400Z-1. A QOZ designation period under § 1400Z-1(e)(1) begins on the applicable start date and ends on the day before the date that is 10 years after the applicable start date. Under § 1400Z-1(e)(2), the term “applicable start date” means, with respect to any QOZ designated under § 1400Z-1, the January 1 following the date on which such QOZ was certified and designated. These provisions are effective only for areas certified and designated after the enactment of the OBBBA.

.04 Designations of QOZs . (1) In General . Section 1400Z-1(b) (1) allows the Chief Executive Officer (CEO) of each State, territory of the United States, and the District of Columbia (State) to nominate LICs within their jurisdiction to be certified and designated by the Secretary of the Treasury or Secretary’s delegate (Secretary) as QOZs. As described in section 3.01(1) of this notice, § 1400Z-1(d) limits the number of population census tracts in a State that the Secretary may designate as QOZs with respect to any designation period. See Rev. Proc. 2026-14, 2026-20 I.R.B. 910, for guidance for State CEOs regarding nomination of a population census tract for designation as a QOZ effective on January 1, 2027.

(2) Designations of previously desig- nated QOZs .

(a) In general . Under prior § 1400Z1(c)(1), a population census tract was eligible for designation as a QOZ if it satisfied the definition of an LIC in § 45D(e). In addition, prior § 1400Z-1(e) provided that a population census tract that was not an LIC could be designated as a QOZ if, among other requirements, the tract was contiguous with an LIC that was designated as a QOZ. Rev. Proc. 2018-16, 2018-9 I.R.B. 383, provided guidance on the nomination, certification, and designation process under prior § 1400Z-1(b)(1) and (2). After the enactment of the TCJA, § 41115 of BBA 2018 created a special rule for Puerto Rico by adding prior § 1400Z-1(b)(3), under which all LICs in Puerto Rico were deemed certified and

designated as QOZs effective on the date of the enactment of the TCJA (that is, December 22, 2017).

(b) Notices 2018-48 and 2019-42 . Notice 2018-48, 2018-28 I.R.B. 9, amplified by Notice 2019-42, 2019-29 I.R.B. 352, provides a list of LICs certified and designated as QOZs by the Secretary in 2018, as well as LICs in Puerto Rico deemed certified and designated as QOZs under prior § 1400Z-1(b)(3), effective on December 22, 2017. Notice 2019-42, 2019-29 I.R.B. 352, added two additional census tracts in Puerto Rico that were deemed certified and designated as QOZs under prior § 1400Z-1(b)(3) effective on December 22, 2017.

(c) Period for which designation is in effect . Prior § 1400Z-1(f) provided a 10-year “QOZ designation period” for which a population census tract, once designated as a QOZ, would remain designated, beginning on the date of the designation and ending at the close of the 10th calendar year beginning on or after such date of designation. Accordingly, the QOZ designation period under prior § 1400Z1(f) ends on— (i) December 31, 2027, for QOZs deemed certified and designated in Puerto Rico under prior § 1400Z-1(b)(3), and

(ii) December 31, 2028, for all other QOZs.