Submitted by Colleen Campbell, ERCGP Intern

Part 1

Interest surrounding the Opportunity Zones tax incentive has been met with clarity as the U.S. Treasury Department and Internal Revenue Service released a set of final regulations on December 19, 2019. This update responded to a number of comments and questions that were made with regard to the proposed legislation and offered prospective beneficiaries a long-awaited, 544-page set of answers. The subsequent series of blogs will serve to outline some of the updates including those pertaining to Section 1231 Assets, Inclusion Events, Original Use, and Substantial Improvement. This post, however, will begin by outlining qualifying investments and general reporting requirements. (You can view the Tax Cuts and Jobs Act of 2017 here, and the second set of proposals here.)

What kind of gains may be invested in a Qualified Opportunity Fund?

• Revenue from the sale of business property may be invested in a QOF, provided that the investment is made within 180 days of the sale of the asset.
• Gains from partnerships, S Corps, trusts, and estates may also be invested in a QOF. The taxpayer must invest any gain within 180 days from the due date of the entity’s tax return. The due date shall not include any extensions.
• Taxpayers may also invest gains from an Investment of Regulated Investment Company (RIC) and Real Estate Investment Trust (REIT). The 180-day investment period may begin with the close of the shareholder’s tax year or when the shareholder receives the dividends from the RIC or REIT which they will invest in the QOF.
• Revenue from Installment Sales may be invested in a QOF, even if the initial sale occurred prior to 2018. The taxpayer may begin the 180-day investment period for each installment on the date when the payment is received or on the last day of the taxable year when the payment is received.
• Nonresident investments may also be made so long as they are “effectively connected to a U.S. business or trade.”

What are the reporting requirements for investing in a Qualified Opportunity Fund?

                Despite a number of comments requesting additional reporting requirements (and even some comments requesting fewer requirements), the final regulations did not alleviate or impose any additional burdens on investors. Rather, taxpayers must still complete Form 8996 and are required to annually report whether deferred gains remain deferred at the end of each tax year.