Attorney John S. Lore knows how and when to take advantage of an opportunity.

An expert in the federal government’s Opportunity Zone Program, created under the Tax Cuts and Jobs Act of 2017, Lore advises established and emerging managers seeking to raise capital by creating funds that will attract investors seeking a capital-gains tax benefit under the program.

He is founder and managing partner of Capital Fund Law Group, with offices in Los Angeles, Calif.; Salt Lake City, Utah; and New York, N.Y. In March, Lore also assumed the position of executive director of the Global Center for Investment Fund Studies in Washington, D.C.

Since founding Capital Fund Law Group in 2010, Lore has received calls from more than 1,000 prospective emerging funds asking his advice. He represents hundreds of hedge funds and real estate fund clients throughout the world.

This month, Financial Advisor discussed the Opportunity Zone Program with Lore.

Financial Advisor: With the emergence of so many start-up funds, what are the biggest challenges many face?

J.L.: Raising capital. Getting an initial base of capital is universally challenging for start-up funds because seed investor arrangements are increasingly difficult to come by.

Financial Advisor: What did Congress omit from the Tax Cuts and Jobs Act of 2017 in creating the Opportunity Zone Program that you would like to see the next Congress take action to amend?

J.L.: We are looking for additional guidance on provisions defining opportunity zone businesses, including the requirements and tests. We’re also waiting on the provisions that would allow managers flexibility in deployment of assets beyond 31 months and to be able to cycle through investments within the 10-year period.

Financial Advisor: What do you find most appealing and least appealing about this program?

J.L.: Most appealing is that it provides a combination of tax deferral and step up in basis that can be used by investors with capital gains to defer both long-term and short-term capital gains. Also, it doesn’t require the investment of the underlying principal to be deferred, but only the actual capital gain.

Least appealing is that there’s a short time horizon for managers to allocate the invested funds. Another weakness is the inability to deduct appreciation, but that can be partially mitigated by recapture.

Financial Advisor: What do investors need to know before committing to a long-term investment in a Qualified Opportunity Zone (QOZ) Fund?

J.L.: For managers, make sure the investment is already a solid candidate for capital appreciation. Although this tax incentive favors capital appreciation over income, often these funds can be stacked with varying municipal, state and federal incentives.

Investors need to be aware that in seven years, the deferred capital gains will need to be paid, and they will need to have liquid cash to pay that tax. Since the capital will still be invested in the Opportunity Zone Fund, where it will need to stay for 10 years in order to realize the full potential tax benefit, investors also need to be careful about the fund managers they choose. This incentive program is likely to attract a number of new, non-traditional managers, many of which may not have the requisite finance and fund management experience.