QOZ Permanence Brings Renewed Interest—and Unresolved Decertification Rules
September 17, 2025
With an intense tax policy season behind us, we now have final tax legislation in place through the One Big Beautiful Bill Act (OBBBA).
The OBBBA includes an expansion of the Qualified Opportunity Zone program and makes the QOZ provisions permanent. With an expansion to the program, it can be expected that there will be renewed interest in investing in Qualified Opportunity Zones, and with that, new Qualified Opportunity Funds created.
Once a Qualified Opportunity Fund is formed and has completed its self-certification on Form 8996, certain testing requirements must be met throughout the entity’s existence to remain in good standing, and to avoid penalties. Like many businesses and projects, these funds are not always successful, and results may not align with initial expectations. Because of this, a fund may eventually need to file a decertification election, allowing the fund to remove itself from the QOZ ecosystem. Despite extensive and detailed regulations, the exact process and method for a fund to decertify largely remains unanswered.
The regulations under Reg. Sec. 1.1400Z2(d)-1, provide that a QOF can decertify its QOF status in the form and manner prescribed by the IRS in forms or instructions. To date, formal instructions unfortunately have not been issued, and without the ability to decertify, QOFs would be subject to penalties for the entirety of their existence, creating numerous issues for the funds and their investors.
The OBBBA includes an expansion of the Qualified Opportunity Zone program and makes the QOZ provisions permanent. With an expansion to the program, it can be expected that there will be renewed interest in investing in Qualified Opportunity Zones, and with that, new Qualified Opportunity Funds created.
Once a Qualified Opportunity Fund is formed and has completed its self-certification on Form 8996, certain testing requirements must be met throughout the entity’s existence to remain in good standing, and to avoid penalties. Like many businesses and projects, these funds are not always successful, and results may not align with initial expectations. Because of this, a fund may eventually need to file a decertification election, allowing the fund to remove itself from the QOZ ecosystem. Despite extensive and detailed regulations, the exact process and method for a fund to decertify largely remains unanswered.
The regulations under Reg. Sec. 1.1400Z2(d)-1, provide that a QOF can decertify its QOF status in the form and manner prescribed by the IRS in forms or instructions. To date, formal instructions unfortunately have not been issued, and without the ability to decertify, QOFs would be subject to penalties for the entirety of their existence, creating numerous issues for the funds and their investors.
In November of 2021, draft Instructions for Form 8996 were released, which created a process to make the decertification election. The draft form provided Line 6 to make the decertification election, along with a requirement to include a statement with additional information regarding the decertification. Unfortunately, the subsequent forms and instructions for Form 8996 removed the decertification commentary, and Line 6 of Form 8996 remains reserved for future use.
To navigate the new opportunities and ongoing challenges in QOZ compliance, reach out to your Sisterson representative.
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