The Second Set of Proposed Opportunity Zone Regulations: Where Are We Now?

Bloomberg Tax published this analysis on April 22, 2019. View the article here.

On April 17, 2019, Treasury issued a highly anticipated second set of proposed regulations on opportunity zones (REG-120186-18, the ‘‘2019 proposed regulations’’). The opportunity zone (OZ) program has received significant national attention as an ambitious and generous tax incentive aimed at driving in- vestment into the nation’s most distressed communities.

Although various forms of tax incentives have been available for years with respect to the economic development of low-income communities (e.g., LIHTC, NMTC, Enterprise Zones, etc.), there are many who believe that this program is the key to unlocking billions, perhaps trillions, of private capital, incentivizing its move into opportunity zone projects. Funds are being created and capital is being raised but much of that capital has been sitting on the sidelines waiting for a sufficient level of regulatory certainty around the rules. This has been particularly true in the context of capital waiting to be deployed into operating businesses in opportunity zones. The open issues, have, in many cases, made investment too risky.

This newest set of regulations brings much-needed clarity to critical questions with respect to the OZ program. The 2019 proposed regulations address a number of issues, including but not limited to:

Allowable qualifying investments in qualified opportunity funds (QOFs);
The relevant definitions of ‘‘substantially all;’’
The original use and substantial improvement tests;
Transactions that may trigger inclusion of previously deferred gain and the amount and timing of that gain;
The treatment and valuation of leased property;
The sourcing of income for purposes of the 50% of gross income test applicable to qualified opportunity zone businesses; and
The definition of a ‘‘reasonable period’’ within which a fund may re-invest proceeds from the sale of an asset.

Read the full article for 10 key takeaways from the 2019 proposed regulations and questions that the regulations address.

Bloomberg Tax also republished this article in its Real Estate Journal.