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:
- Identity of the Taxpayer
- Gains Eligible for Deferral
- Entities Eligible to be Qualified Opportunity Funds (QOFs)
- Certification of QOFs
- Initial Compliance with the 90% Asset Test
- The Definition of "Substantially All"
The Proposed Regulations also provide additional investor-friendly guidance that is largely a reaction to comments and suggestions received by the Treasury Department, including the following four provisions:
- Special Allocations
- Working Capital Safe Harbor
- The Definition of "Substantial Improvement"
- The Favorable Uses of Debt
Read the full summary in our Opportunity Zones Alert.