By Anayat Durrani

Nine Democrats on the U.S. House of Representatives’ Ways and Means Subcommittee on Oversight has penned a letter requesting that the U.S. Department of the Treasury take into consideration three ways to bolster opportunity zones benefits to aid distressed communities. The three ways include putting in place a rigorous certification process for OZ funds, having a dedicated agency staff to oversee OZs, and making transaction reporting separate from tax forms. The letter, dated Dec. 30, 2021, came about from a Nov. 16, 2021 committee hearing on OZs and includes Rep. Bill Pascrell of New Jersey, the subcommittee chairman, as a signatory.

“The suggestions from the Ways and Means Committee are focused mainly on reporting, transparency and disclosure. That is to be expected, since Treasury cannot change the existing statutory provisions in the Internal Revenue Code (the Code) that apply to the Opportunity Zone program,” says Jessica M. Millett, chair of Duval & Stachenfeld LLP Tax Practice Group. “Treasury can issue regulations to explain how the rules work and clarify certain elements of the program, but anything in the Code can only be changed by Congress. “

The impact of the committee’s action on the Opportunity Zone industry

The letter urged Treasury to promptly put into effect those stated rules or similar requirements. They also requested they be informed of actions taken, or plans to take, by the Treasury regarding the program, in line with views the President has made about the program.

“Adding in reporting requirements is a no brainer, and the OZ community has been asking for those ever since the TCJA was passed,” says Millett. “There were reporting requirements in the original OZ legislation which were stripped out as part of the tax reform process, and it’s a shame the program has operated so far without any of that data collection.”

Millet says recent congressional proposals on OZ reporting have gone further than the original reporting requirements, and she hopes one day soon those will get tacked onto another bill. She says without the reporting requirements, “there is no way to tell if the OZ program is “working” since we have no measurable data to look at.”

Millett says she is skeptical about the request for putting in place a rigorous certification process for QOFs.

“A more fulsome certification process would help to evaluate how QOFs intend to make investments to further the goals of the OZ program. However, the deadlines and timing requirements of the OZ program, especially for investors who have a limited period of time to invest their eligible gains into a QOF, likely would not dovetail well with a lengthy certification process,” says Millett.

For example, she says if a QOF will need additional time to provide a detailed application explaining its intended investments and how it will bolster economic activity in designated opportunity zones before its certification as a QOF, “then investors will likely need more time to invest their eligible gains since they might need to wait for a potential investment vehicle to be certified as a QOF.” She says the program is currently not set up that way and she doesn’t see how that can be accomplished without changes from Congress.

“Hopefully they can get the reporting requirements through at least,” says Millett.

What requested changes could mean for the Opportunity Zone industry

Gordon Goldie, partner, Housing and Community Development Solutions at Plante Moran, PLLC, says the IRS is arguably not responsible for maximizing the extent to which the tax law is equitable and their role is to interpret and enforce the tax law that is enacted by Congress.

“Increasing the administrative burden of utilizing the opportunity zone incentive will likely deter participation,” says Goldie.

He says to Treasury’s credit, the department has generally interpreted the statute in a manner that has made the opportunity zone incentive easier to use.

“If Congress wants the IRS to administer the opportunity zone incentive to increase the extent to which it is equitable, then Congress should amend the statute to establish parameters for the IRS to follow so that the results are more equitable,” says Goldie.

The letter concluded by stating that over 10% of the U.S. population lives in a designated opportunity zone and that designated tracts have lower incomes, higher poverty levels, more unemployment and greater non-white populations in comparison to other eligible census tracts.

“It is essential that we prioritize accountability and results to the communities that this program was intended to help,” the letter said.


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