Treasury Releases New Guidance on Opportunity Zones

Today, the U.S. Treasury Department released long-awaited guidance on opportunity zones. The release came amid a lengthy White House program that included secretaries from HUD and Treasury, as well as some practitioners working in opportunity zones around the country. This second round of proposed regulations promises to provide clarity for everyone that has been eagerly anticipating their release.

Here, we touch on a few of the issues addressed in the 169-page proposal:

• Extensive discussion around how to make it easier to do multi-asset and multi-investor funds
• Additional leeway to invest capital on a more flexible timeline
• Three safe harbors and a facts and circumstances catchall that provides flexibility in meeting the 50 percent gross income test 
• Specific definitions related to “substantially all” provisions not previously covered
• Details and clarification on the working capital safe harbor
• How to treat leased assets versus owned assets
• How a fund might qualify assets that straddle the OZ geography
• Original use definitional flexibility based on meeting a five-year vacancy rule
• Limitations on OZ tax benefits pursuant to carried interest
• One-year grace period to sell assets and reinvest the proceeds, thus avoiding penalties intended to prevent funds from sitting on cash
• Investors who’ve held their stake in a fund for at least 10 years – even if the fund didn’t own the asset for a full decade – will qualify for special tax treatment

For a comprehensive, in-depth analysis of the proposed regulations, look for our April 24th Tax Alert newsletter and watch our on-demand webinar.

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