What Is a QOZB? Qualified Opportunity Zone Business Rules for Founders

Founders hear that investors can get a large tax break for funding businesses in Opportunity Zones. That’s true, but the business has to qualify as a qualified opportunity zone business (QOZB), and the rules were written mostly with real estate in mind. This guide explains what a QOZB is, the tests in plain words, where software and remote companies run into trouble, and what founders themselves can and can’t get.

To check your own numbers, use the QOZB test checker.

Quick answer: QOZB requirements

A qualified opportunity zone business (QOZB) is an operating business that a qualified opportunity fund owns through newly issued stock or partnership interests bought for cash. To qualify, under IRC §1400Z-2(d)(3) and Treas. Reg. §1.1400Z2(d)-1(d), it must:

• hold at least 70% of its tangible property as qualified opportunity zone business property;
• earn at least 50% of its gross income from the active conduct of a business in a zone;
• use at least 40% of its intangible property in that business;
• hold less than 5% of its property as nonqualified financial property (cash held under a written 31-month working capital plan is allowed);
• not be a “sin” business, such as a golf course, country club, massage parlor, hot tub or suntan facility, racetrack or gambling facility, or a store whose main business is selling alcohol for off-premises use.

A QOF can hold a QOZB to meet its own 90% asset test, which is why most operating-business and many real estate deals use this two-tier structure. Test your numbers with the QOZB test checker, and see QOF vs QOZB.

What a QOZB is

An Opportunity Zone investment usually has two tiers:

1. An investor puts eligible capital gain into a qualified opportunity fund (QOF) within 180 days (IRC §1400Z-2(a)).
2. The QOF buys newly issued stock or partnership interests in an operating company, at original issue and solely for cash. That company must be a QOZB, or be newly organized to become one, and stay one for substantially all of the QOF’s holding period (§1400Z-2(d)(2)(B)-(C)).

The QOZB is your company. The tax benefits go to the QOF’s investors. For how the two tiers fit together, see QOF vs QOZB.

The tests, in plain words

The rules are in IRC §1400Z-2(d)(3), which borrows parts of IRC §1397C(b), and in Treas. Reg. §1.1400Z2(d)-1(d).

1. 70% tangible property

At least 70% of the tangible property the business owns or leases must be qualified opportunity zone business property (§1.1400Z2(d)-1(d)(2)). Roughly, that means property used substantially all in a zone and, if bought, acquired by purchase from an unrelated party with original use or substantial improvement. Leased property can count; the lease must be on market terms, and leases from related parties have extra conditions (§1.1400Z2(d)-2).

In plain words: most of your equipment, furniture and space should be in the zone.

2. 50% gross income, with four safe harbors

At least 50% of gross income must come from the active conduct of a business in a zone (§1397C(b)(2)). The regulations say a business meets this if it passes any one of four tests (§1.1400Z2(d)-1(d)(3)(i)):

• (A) Hours: at least 50% of the hours of services performed for the business (by employees, independent contractors and service partners) are performed in a zone.
• (B) Amounts paid: at least 50% of the amounts paid for services are paid for services performed in a zone.
• (C) Property and management: the tangible property in the zone and the management or operational functions performed in the zone are each necessary to generate at least 50% of gross income.
• (D) Facts and circumstances: based on all the facts, at least 50% of gross income comes from active conduct of a business in a zone.

Customers don’t have to be in the zone. The test looks at where the work and the business are.

3. 40% intangibles use

At least 40% of the business’s intangible property (software, patents, trademarks, know-how) must be used in the active conduct of the business in a zone (§1397C(b)(4); §1.1400Z2(d)-1(d)(3)(ii)). Use counts if it’s normal for the business and happens in the zone in an activity that helps generate income.

4. Less than 5% nonqualified financial property

Less than 5% of the average unadjusted bases of the business’s property can be nonqualified financial property: stock, debt, options and similar assets. Reasonable working capital held in cash, cash equivalents or debt of 18 months or less is excluded (§1397C(b)(8), (e)(1); §1.1400Z2(d)-1(d)(3)(iv)).

In plain words: a freshly funded company sitting on its raise needs the working capital safe harbor.

5. The working capital safe harbor

Cash counts as reasonable working capital if three things are true (§1.1400Z2(d)-1(d)(3)(v)):

• Written plan: it’s earmarked in writing for developing a business in a zone.
• Written schedule: there’s a written schedule, consistent with the ordinary start-up of a business, to spend it within 31 months of receipt.
• Spending matches: it’s actually spent substantially consistent with the plan. Delays waiting on a completed government application don’t count against you.

A start-up can use more than one 31-month period, up to 62 months, if each one meets the rules and later infusions are part of the original plan. A business in a zone hit by a federally declared disaster can get up to 24 more months (§1.1400Z2(d)-1(d)(3)(v)(D), (vi)).

While the plan runs, income from the working capital counts toward the 50% test, and intangibles bought or licensed under the plan meet the 40% test (§1.1400Z2(d)-1(d)(3)(vi)).

6. No “sin” businesses

A QOZB can’t be any of these, or lease more than a de minimis amount of property to one (§1400Z-2(d)(3)(A)(iii); §1.1400Z2(d)-1(d)(4)):

• a private or commercial golf course
• a country club
• a massage parlor
• a hot tub facility
• a suntan facility
• a racetrack or other facility used for gambling
• a store whose principal business is selling alcoholic beverages for consumption off premises

De minimis means less than 5% of gross income, or less than 5% of rentable square feet or property value.

The fund above you has its own test: a QOF must hold at least 90% of its assets in Opportunity Zone property (§1400Z-2(d)(1)).

Caveats for remote and software companies

• Distributed teams. Hours and pay are counted where the work is performed. A team mostly working from homes outside a zone usually fails tests (A) and (B) and has to rely on (C) or (D). An employee who works from a home inside a zone counts as in-zone work.
• Laptops and equipment. Tangible property used mostly outside a zone generally isn’t QOZ business property, so laptops shipped to remote staff count against the 70% test.
• The office matters. For a company with little equipment, a leased office in the zone is often most of the tangible property, and a zone headquarters with management there supports test (C).
• Cloud infrastructure. We found no IRS guidance on whether cloud computing services count as leased tangible property for the 70% test. Ask counsel.
• Where software is “used.” The 40% intangibles test has no specific guidance for code written by distributed engineers and sold nationally. Developing and maintaining the IP from the zone office is the strongest fact pattern. Holding the IP in a separate company outside the zone and licensing it in is riskier.
• Pivots. The working capital plan must be followed substantially as written. A pivot that changes how the money is spent is a risk today.

What founders can and can’t get

• Founder shares: no. Shares you hold directly aren’t held through a QOF, and shares received for work aren’t bought for cash. The regulations say an interest received for services rendered to a QOF, or to a business it invests in, is a non-qualifying investment (Treas. Reg. §1.1400Z2(a)-1(b)). Sweat equity and IP contributed for equity don’t qualify.
• Your own capital gains: yes, on that slice. If you have eligible capital gain of your own (for example, from selling stock), you can invest it in cash in a QOF within 180 days, and the QOF can buy new stock in your company for cash. The benefits apply only to the part funded with deferred gain; any other money in the same investment is treated separately (§1400Z-2(e)(1)).
• The real value for most founders is the raise. Investors with capital gains may prefer a company that qualifies. That’s a fundraising edge, not a tax break on founder stock.

Structuring a QOF around your own company raises related-party, valuation and anti-abuse questions. Get a tax attorney’s advice before you set one up.

What investors get, and when

For amounts invested in a QOF after December 31, 2026, IRS Notice 2026-55 summarizes the law: deferred gain is included in income no later than five years after the investment; a five-year hold adds a basis step-up of 10% of the deferred gain, or 30% for a qualified rural opportunity fund; and after 10 years, the investor can elect a basis equal to fair market value, with a 30-year limit. For what counts as rural, see IRS Notice 2025-50.

Is your location in a zone?

Check the office or facility address:

• The Opportunity Zone map shows the 2018 zones (in effect through December 31, 2028) and the tracts eligible for OZ 2.0.
• The OZ 2.0 likelihood checker shows whether an address is in a tract a governor nominated. OZ 2.0 tracts become zones only when Treasury certifies them; certified zones take effect January 1, 2027.

The rules are still open: comment by November 23, 2026

IRS Notice 2026-55 asks for public comments by November 23, 2026. For operating businesses, it asks whether a QOZB should be able to modify a working capital plan, how working capital spending affects the 70% test, and “what additional guidance would help operating businesses.” Comments go to Regulations.gov (docket IRS-2026-1156). See Notice 2026-55 explained.

Next steps

1. Run your numbers in the QOZB test checker.
2. Check your location on the map.
3. Take your results to a tax attorney or CPA who works on Opportunity Zone deals.

Related reading

• QOF vs QOZB
• What is a qualified opportunity fund?
• IRS Notice 2026-55 explained

Sources: IRC §1400Z-2; IRC §1397C; Treas. Reg. §1.1400Z2(d)-1; Treas. Reg. §1.1400Z2(d)-2; Treas. Reg. §1.1400Z2(a)-1; IRS Notice 2025-50; IRS Notice 2026-55.

Not tax advice.