IRS Releases FAQs with Information on Opportunity Fund Certification

New Opportunity Zones Announced

The U.S. Department of Treasury and the IRS have announced a second round of Opportunity Zone designations in five states and one territory.

The first round of approvals, which designated Opportunity Zones in 15 states and 3 territories including in NJ was announced earlier this month. Altogether, nearly half of all nominations have been approved, and the remaining designations are expected in the coming weeks now that the final April 20 deadline for states to submit their nominations has passed.

Last week the IRS also published frequently asked questions (FAQs) about the Opportunity Zones tax incentive and clarified that a taxpayer can self-certify to become a qualified opportunity fund.

The FAQs note that no approval or action by the IRS is required to certify a taxpayer and that the IRS will release a self-certification form in summer 2018 that taxpayers can attach to their federal income tax returns.

Enterprise submitted comments to Treasury in March with recommendations for implementing the Opportunity Zones tax incentive, including the recommendation that potential Opportunity Funds be required to provide an explanation of intent to be certified as a Qualified Opportunity Fund.

Understanding an Opportunity Fund’s intention for investing – that is, in which geographic areas and in what investment types and asset classes – is critical for ensuring that these new investment funds are structured with an eye towards equitable economic development that results in direct and sustained community benefits. 

While stakeholders await additional guidance from the IRS and local governments consider what to do next, housing and community development organizations across the nation are exploring ways to use the new tax benefit to promote equitable investments, including in affordable housing and new small businesses.

Rachel Reilly, director of impact investing at Enterprise Community Partners, notes that Opportunity Funds could be “especially helpful in supplying the equity capital that could work in tandem with other tax credits.”

However, the types of investors that will actually use the tax benefit will depend on the guidelines Treasury releases in the coming months.

Many are concerned that the broad range of investments permitted in the statute could create opportunities for abuse, while others worry that the program, as currently structured, will contribute to displacement of low-income residents and residents of color. Enterprise urges all stakeholders to weigh in with the Treasury Department and IRS as additional guidance is released.

IRS FAQ

Governor Murphy’s Press Release

Opportunity Zones: What They Are, Why They Matter

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