IRS Issues Second Round of Proposed Regulations on Opportunity Zones

The Internal Revenue Service today issued a highly anticipated package of proposed regulations on the Opportunity Zone tax incentive, which allows investors to take proceeds from capital gains and invest them in defined qualified opportunity funds. Assuming holding periods are satisfied, a portion of the initial deferred gain may be exempt from tax and post investment appreciation may be totally exempt.

The 169-page proposal provides guidance on the “substantially all” requirements and for the holding period and use of the tangible business property. It also addresses calculations for gain inclusion transactions, treatment of leased property, use of qualified zone property and sourcing of income. In addition, it provides guidance on reasonable periods for qualified opportunity fund investments.

In many cases, investors, developers and other parties have been waiting for this additional guidance prior to making their investments. The incentive has attracted significant interest from investors, with estimates of pending investment dollars totaling more than $20 billion.

ABA is currently reviewing the regulations and soliciting banker feedback for a potential comment letter. Comments are due 60 days after publication in the Federal Register.