The words “substantially all” appear twice in the definition of QOZ business property. Do these words have the same meaning in both places? If not, what are the two meanings, and how do they interact?

The words "substantially all" do not have the same meaning in both places within the definition of Qualified Opportunity Zone (QOZ) business property. The two meanings and their interaction are as follows:

1. First "Substantially All" (90% Holding Period Requirement):
   • This reference pertains to the duration for which the QOF or QOZ business must hold the tangible property. Specifically, it means that at least 90 percent of the time during which the QOF or QOZ business holds or leases the tangible property, the property must be used in a QOZ.
   • This requirement ensures that the property is predominantly held for use within the QOZ over the holding period, reflecting the intent to focus investment within these designated areas.
2. Second "Substantially All" (70% Use Requirement):
   • This reference pertains to the extent of the use of the tangible property within the QOZ. Specifically, it means that at least 70 percent of the use of the property by the QOF or QOZ business must occur within the QOZ.
   • This requirement ensures that a significant portion of the property's use is within the QOZ, promoting economic activity in these areas.

Interaction:

• The interaction of these two definitions means that during at least 90 percent of the time the QOF or QOZ business holds or leases the tangible property, at least 70 percent of the use of that property must be within a QOZ. This combined requirement ensures that the property is both held and used predominantly within the QOZ, thereby maximizing the economic benefits to the designated areas.

In summary, the first "substantially all" (90%) pertains to the holding period, while the second "substantially all" (70%) pertains to the use of the property. Together, they ensure that the property is both held and used primarily within the QOZ, aligning with the legislative intent to stimulate economic growth in these areas.

Sources:
§ 1.1400Z2(d)-1. Qualified opportunity funds and qualified opportunity zone businesses.
Rev. Rul. 2018-29
Solving the Problem of ‘Substantially All’ in the O-Zone Rules
PLR 202249005
§ 1.1400Z2(d)-2. Qualified opportunity zone business property.
Qualified Small Business Stock and the ‘Substantially All’ Problem