Government Shutdown Impacts Qualified Opportunity Zones
Questions regarding the proposed regulations pertaining to Qualified Opportunity Zones remain unanswered due to the shutdown of the federal government. The IRS was scheduled to start taking comments on the draft regulations (which were first issued in October 2018) at a January 10 public hearing. Due to the shutdown, those hearings are now on hold and will remain on hold until Treasury Department funding is fully restored and IRS employees return from furlough.
Investors, developers and community groups who were invited and prepared to provide feedback on the proposed regulations at the hearing now must wait. The IRS already received over 150 comments prior to the scheduled hearing in response to its request for feedback on the definitions of "substantial improvement" and "original use." Ambiguity around these and other terms leaves investors uncertain about which projects may qualify for the program and how investments can evolve over time without becoming disqualified from the tax incentive. The cancellation of the hearing delays the clarification of these definitions as well as other issues, and this could impact investor confidence in moving forward with potential projects.
Even so, there are deals building in the pipeline. More than 8,700 areas in economically distressed communities across the country have been designated as Qualified Opportunity Zones and potential targets for the estimated $6 trillion in idle capital gains in search of tax breaks. Varnum is actively assisting clients with creative deal structures that take advantage of the new tax incentive opportunity.
Please visit our Qualified Opportunity Zone Funds service page for more information on the evolving regulatory landscape governing these deals, or contact Fred Schubkegel, Katie Roskam or Mary Kay Shaver with any Qualified Opportunity Zone questions.
You May Also Be Interested In
- Tax Advisory, December 30, 2019
- Tax Advisory, April 25, 2019
- Tax Insights, July 9, 2018