Every golfer knows there is a penalty attendant to hitting the ball out-of-bounds. In business, as with golf, being "out-of-bounds" when dealing with the Internal Revenue Code has penal consequences too. But there the analogy falters when applied to opportunity zones, because while golfers can see the out-of-bounds markers and the other staked penalty areas, for opportunity zones those stakes are not yet visible.

On May 9, 2019, the Massachusetts Department of Revenue issued for practitioner comment a working draft Technical Information Release ("TIR") addressing the Massachusetts corporate excise and personal income tax ramifications of the federal Opportunity Zone provisions. Due to the different dates upon which Massachusetts conforms to the Internal Revenue Code (the "Code"), corporations will benefit and individuals will not.

Clarification on Working Capital, Substantial Improvement and Use of Leverage will Drive Investment Activity

Once again our Ozone Working Group knocked it out of the park with close to 100 eager participants at our panel explaining the Treasury’s proposed regulations on Opportunity Zones.

Our guest panelist, Ryan McCormick from the Real Estate Roundtable, a national thought leader and closely connected to those who are responding to the industry, provided valuable insight in what may come next. Ryan will be joining our New York panel next week on November 8.

The Opportunity Zones Program created by the U.S. Tax Cut and Jobs Act of 2017 (the "OZone Program") and the first wave of proposed regulations issued by the Treasury Department on October 19, 2018 (the "Regulations") have been designed to generate economic activity in low-income urban and rural communities. Sullivan & Worcester’s Opportunity Zones Practice Group has analyzed the OZone Program and Regulations and has successfully structured multiple Qualified Opportunity Funds ("QOFs") with an anticipated aggregate capital raise of nearly $600 million.

As we and our clients continue to develop innovative QOF structures, we will provide a series of advisories that highlight specific structuring elements that are consistent with the OZone Program and the Regulations.

The Tax Cuts and Jobs Act (TCJA), passed in late 2017, contained many headline-grabbing new tax provisions, and during the initial wave of public reaction and acclaim the Opportunity Zones Act (Ozone Act) embedded in the TCJA was largely overlooked.  However, the Ozone Act has proven to be something of an iceberg, with only the tip visibly exposed: Beneath the surface, Ozones have developed into something quite large – and perhaps enormous.

On October 19, 2018, the Treasury Department issued highly-anticipated proposed regulations related to the U.S. Tax Cut and Jobs Act of 2017's Opportunity Zones Program (the "Proposed Regulations"). Taxpayers and investors have been anxiously awaiting guidance from the Treasury Department before funneling millions of dollars into the previously designated Opportunity Zones. The Proposed Regulations clarify certain fundamental aspects of the Opportunity Zone Program and address specific complex issues.

Ultimately, the Proposed Regulations confirm many of the theories and opinions that Sullivan & Worcester’s Opportunity Zones Practice Group previously advanced and provide several investor-friendly provisions that should dramatically accelerate the creation of Qualified Opportunity Funds ("QOFs") and the deployment of capital into Opportunity Zones. Although the Proposed Regulations are not final, and remain subject to a public comment period and further review by the Treasury Department, taxpayers and investors should feel confident relying on the Proposed Regulations.

The Proposed Regulations confirm several threshold issues, including:

John Gahan authored the article "The Land of OZ: Measuring Results," which was published in the October 2018 issue of Tax Credit Advisor.

Client Alert: On September 12, 2018, the Treasury Department announced that its proposed Opportunity Zones Regulations have been forwarded to the Office of Management and Budget ("OMB") for review. This is the final step before the proposed Opportunity Zone Regulations will be issued to the public for comment.

2017's federal tax legislation introduced "Opportunity Zones," a new community reinvestment tool designed to use tax incentives to drive long-term investment to rural and low-income urban communities throughout the nation. The Opportunity Zone program is the first new national community investment program in over 15 years and has the potential to be the largest economic development program in the U.S. This broad legislation will benefit many stakeholders from individual taxpayers to developers and fund sponsors.