OZ Flash: Newly Issued Proposed Regulations and the President's Remarks are a Boon to the OZ Incentive

Yesterday, the Treasury Department rolled out proposed Opportunity Zone (“OZ”) regulations (the “Proposed Regulations”) and President Trump noted the progress made by his Opportunity and Revitalization Council to eliminate barriers to OZ investments. The administration is clearly all in on maximizing the number of businesses and projects that will qualify for OZ benefits.

We will issue a detailed client alert discussing the proposed regulations, which span 169 pages, in the coming days. In the meantime, it’s particularly noteworthy that the Proposed Regulations clarified a number of areas for which taxpayers have been seeking guidance, including the following:

The President’s Remarks

The president touted the merits of OZ in revitalizing distressed areas to a group of governors, state economic and budget directors, and other local officials. Among other comments, President Trump said, “In order to revitalize these areas, we’ve lowered the capital gains tax for long-term investments in Opportunity Zones all the way down to a very big, fat, beautiful number of zero — zero … [t]hat’s why they’re looking and they’re saying, ‘No, I don’t want to go there. Maybe I don’t love the location, I don’t want to go.’ Then they hear about the zero — they’ll say, ‘I think I’m going to go there.’ And then they start liking the location, right?”

The rollout of the Proposed Regulations was augmented by a progress report on the president’s December executive order (“EO”) establishing the White House Opportunity and Revitalization Council, which is aimed at cutting the red tape among federal agencies, as well as state and local governments, and could be a barrier to the take-up rate on OZ [see alert here]. The EO imposed a short-term timeline to identify potential bottlenecks as well as to identify potential solutions. The White House provided an update on this initiative headed up by HUD Secretary Ben Carson. The update includes a list of programs and action items already taken, as well as an operational plan to address other perceived barriers. The plan is broken down into work streams, or subcommittees, including economic development, entrepreneurship, safe neighborhoods, education and workforce, and measurement and analysis (i.e., social impact).

Given this significant display of support for OZ from the White House yesterday and the demonstration of progress on the EO, Republican congressional support for legislative proposals to enhance data reporting to measure social impact could increase and perhaps even expand the program to “disaster OZ” or adapting OZ to infrastructure investment. House Ways and Means Committee ranking member Kevin Brady, who shepherded the tax reform bill through the House last year, put out a strong statement of support for OZ following yesterday’s events.

Copyright 2024 K & L Gates
National Law Review, Volumess IX, Number 112