Treasury and the IRS on October 31 announced the release of a new, draft form implementing certain reporting requirements under the Tax Cuts and Jobs Act Opportunity Zone program.
The proposed Form 8996 for Qualified Opportunity Funds (QOFs) comes after numerous calls on Capitol Hill for more transparency within the Opportunity Zone program. “The form is designed to collect information on the amount of investment by opportunity funds in business property by census tract,” according to a Treasury press release.
Opportunity Zones’ Architect Applauds Treasury’s Steps Toward Reporting Requirements
Ken Farnaso, press secretary for Sen. Tim Scott, R-S.C., chief architect of the TCJA’s bipartisan Opportunity Zone program, told Wolters Kluwer on October 31 that reporting requirements, “an important piece of the puzzle,” were, in fact, originally in the bill. “Unfortunately, during the tax reform process, Senate Democrats blocked these requirements from being included in the Tax Cuts and Jobs Act. Since then, Senator Scott has continued working to restore those reporting requirements,” Farnaso said.
Additionally, Farnaso told Wolters Kluwer that Scott applauds Treasury’s steps to ensure a clearer picture of the impact the Opportunity Zones initiative can have on the country. “Senator Scott will also continue to push for his current bill restoring robust reporting requirements to create a holistic picture of how the initiative is functioning,” Farnaso said. “Overall, today is a good day for Opportunity Zones. We look forward to the more than $44 billion in currently anticipated investment being deployed in distressed communities across the nation, and that number growing even larger in the future.”
Opportunity Zones Tax Incentive
The Opportunity Zone Program enacted under TCJA ( P.L. 115-97) is considered on Capitol Hill as one of the most generous and ambitious tax incentives for investors in distressed communities. Under Code Sec. 1400Z-2, investors may defer taxation of capital gains that are invested in a QOF.
Generally, the following investor tax benefits were created under the Opportunity Zone program:
- a temporary tax deferral for capital gains realized on the sale of appreciated assets and reinvested within 180 days in a QOF;
- the elimination of up to 10 or 15 percent of the tax on the capital gain that is invested in the QOF and held between five and seven years; and
- the permanent exclusion of tax when exiting a qualified opportunity fund investment held for at least 10 years.
Draft IRS Form 8996
Specifically, the new, draft Form 8996 for the 2019 tax year requires QOFs to report the following information:
- the Employer Identification Number (EIN) of each business in which the QOF has an ownership interest;
- the census tract location of the tangible property of the business;
the value of the QOF’s investment; and
- the value and census tract location of qualified business property directly owned or leased.
“This is an important step towards a thorough evaluation of the Opportunity Zone tax incentive,” Treasury Secretary Steven Mnuchin said. “We want to understand where Opportunity Zone investments are going and strengthening the economy so that investors and communities can learn from the successes of this bipartisan, pro-growth policy.”
Generally, the collection of this information will play a role in allowing lawmakers and the public to evaluate the effects of the tax incentive and to understand why some locations may be more successful than others at attracting investment, according to Treasury.
Opportunity Zones Criticism
The Opportunity Zone program has not come to fruition without its share of criticism, however. Although lawmakers have called for reporting requirements related to QOFs since the TCJA’s enactment, the program has recently come under increased scrutiny and criticism. Senate Finance Committee (SFC) ranking member Ron Wyden, D-Ore., has said that the lack of reporting requirements are “inexcusable.”
“Requiring taxpayers to prove they’re actually following the rules of the Opportunity Zone program is a positive first step, but it’s one that should have been taken two years ago…,” Wyden said in an October 31 statement. “The Opportunity Zone program has been operating without any effort to ensure compliance and that’s inexcusable.”