The Treasury Department and the Internal Revenue Service today issued proposed guidance on the Opportunity Zones tax incentive. The incentive — which was part of the new tax reform law — aims to drive long-term equity capital to distressed communities by providing tax benefits on investments in qualified projects, or “Opportunity Funds.” Treasury has certified 8,761 communities in the U.S., D.C., and U.S. territories as Opportunity Zones.
The proposed regulations address numerous questions that have arisen since the enactment of the tax reform law. They outline — among other things — what gains qualify for deferral, which taxpayers and investments are eligible and the parameters for opportunity funds. The guidance appears to resolve an uncertainty generated by the wording of the statute regarding what types of gains are eligible for the benefit. The guidance indicates that only capital gains qualify.
Comments on the proposal are due in 60 days, and bankers are encouraged to submit their feedback for ABA’s comment letter. The IRS and Treasury also indicated that they will issue additional guidance at a later date.