IRS Releases New Draft Form 8996, Adding More Detailed Reporting Requirements for Qualified Opportunity Funds

Created by the Tax Cuts and Jobs Act, the Opportunity Zones program offers significant tax incentives to encourage investment in certain designated low-income communities. Our Opportunity Zones Practice Team provides in-depth tax, real estate, corporate finance and other advice to clients exploring the opportunity zone program.

As part of this advice, we wanted to let you know that the Treasury and IRS just released (10/31/19) a proposed Form 8996 for QOFs for the 2019 tax year. The proposed changes to this are significant because they require a QOF to disclose more specific information about its investments. QOFs are required to file Form 8996 each taxable year.

Specifically, the Draft Form 8996 requires a QOF to report the following additional information:

• With respect to qualified opportunity zone business property owned or leased by the QOF (new Part V):
  • every census tract where QOZ business property directly owned or leased by the QOF is located; and
  • the value of such property on each testing date
• With respect to qualified opportunity zone stock or partnership interests owned by the Fund (i.e., interests in QOZBs)(new Parts VI and VII):
  • every census tract in which the tangible property of the QOZ business is located and the EIN of that QOZ business;
  • the value of the tangible property owned or leased by each QOZB on each testing date; and
  • the value of the QOF’s investment on each testing date, apportioned to each census tract

The QOF must also indicate which valuation method (the applicable financial statement valuation method or the alternative valuation method) it is using.

The proposed Form also requires the QOF to report whether any QOF investor disposed of part or all of its equity interest in the Fund during the QOF’s tax year. If the answer to this is yes, the QOF is required to attach a statement with each investor’s name, the date of disposal, and the interest that they transferred during the QOF’s tax year.

Treasury has described the need for this information as follows:

“This type of information will allow the Department to monitor the amount of investment received by different tracts over time.  Combining this investment information with data on employment and incomes will help policymakers and the public to evaluate the effects of this tax incentive and to understand why some locations may be more successful than others in attracting investment.”

We wanted to make you aware of these important changes. 

We are currently working with clients to create qualified opportunity funds (QOFs) and structure and evaluate potential opportunity zone investments. If you are new to Opportunity Zones, we would be happy to help you explore ways in which you can benefit from this program.