The American Bankers Association submitted a comment letter to the Internal Revenue Service this week offering feedback on the second tranche of proposed regulations related to the Opportunity Zones tax incentive. The incentive was created as part of the 2017 tax reform law and aims to drive long-term equity capital to distressed communities.
Under the program, taxpayers with qualified gains can invest them into identified Opportunity Zones around the country. Assuming requirements are met, the recognition of the qualified gains is deferred until 2026 and a portion of the gains may permanently avoid taxation. In addition, assuming holding period requirements are met, gains realized on the underlying qualified Opportunity Zone businesses are non-taxable upon disposition.
In its comments, ABA noted that as this is a new program, there several operational issues that will need to be addressed. ABA specifically called on the IRS to: clarify that an “eligible taxpayer” includes all members of a consolidated group; include C corporation opportunity zone funds in the results of a consolidated group; provide flexibility with respect to the timing of qualified Opportunity Fund investments; and modify the identification period for capital gains allocated from pass-through entities. ABA also urged the IRS to provide grandfathering and transition rules for taxpayers who have made good faith investments relying on the original statute and previously issued proposed guidance.