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On April 17, 2019, the United States Department of the Treasury (“Treasury”) issued its second round of proposed regulations related to investment in Qualified Opportunity Zones (“QOZs”) and Qualified Opportunity Funds (“QOFs”). Treasury’s first round of proposed regulations and other guidance on QOZs and QOFs was issued on October 26, 2018.
The Tax Cuts and Jobs Act of 2017 created the QOZ concept to provide tax advantages for investments in lower-income areas. Investors who realize certain capital gain income may reinvest in a QOF within 180 days to defer and potentially achieve exemption from capital gains tax from QOF investments.
Treasury’s issuance of this latest round of proposed regulations was highly anticipated in the business community. It provides critical information to QOF sponsors, potential investors, and project owners and operators involved in operating businesses, real estate development, venture capital, and project finance in QOZs.
Of special interest in this new round of proposed regulations is guidance relating to the qualification criteria for operating businesses and venture capital and further clarity in the qualification criteria for real estate development projects. Smith Debnam stands ready to advise and assist clients in fund formation and investor utilization; sponsor, developer, and operator project qualification; and continued compliance under the QOZ incentive program.
We are reviewing the new round of proposed regulations and will offer our detailed analysis of them in the near future. For the time being, we point out that some “highlights” of the new proposed regulations include guidance on:
The complete proposed regulations can be found on the IRS website here: https://www.irs.gov/pub/irs-drop/reg-120186-18-nprm.pdf.