The Treasury Department (Treasury), on October 19th, released proposed regulations under Internal Revenue Code (IRC) Subchapter Z – Opportunity Zones (the OZ Program), which was enacted as part of the 2017 tax reform legislation (the Act). The OZ Program is intended to spur investment in economically distressed communities and promote long-term economic growth in these communities through a variety of investment vehicles. Treasury Secretary Steven Mnuchin recently stated that he believes the OZ Program would encourage $100 billion of investment in areas designated as qualified opportunity zones (OZs). Investors in an OZ may be eligible for significant tax benefits as described below.
Earlier this year, Treasury certified 8,761 OZs in all 50 states, the District of Columbia, and five US territories through authority given by Congress. Notice 2018-48 provided a complete list of all census tracts that were certified as OZs.
The IRS guidance addresses numerous key issues that potentially could create uncertainties and act as obstacles to the expected large flow of capital through the OZ Program. Treasury states that a taxpayer may rely on the proposed regulations provided the taxpayer applies the proposed rules “in their entirety and in a consistent manner.”
Live webcast to continue the conversation: Please join PwC’s specialists on our webcast, Tax reform readiness: Opportunity zones proposed regulations - Optimizing benefits and avoiding pitfalls, October 30, 2018 at 2:00 PM EDT, as they discuss the key considerations for both starting and investing in a Qualified Opportunity Fund. Access the registration here.
The proposed regulations answer many questions that were impeding both investors and QOF sponsors from advancing under the program, and this guidance should encourage capital to begin to flow into OZs. While the guidance answered many initial issues, questions remain as taxpayers anticipate additional guidance, especially for those wishing to invest in OZ businesses.
Asset Management Tax Leader, PwC US