OIRA Concludes Review of IRS Opportunity Zone Regulations

The Office of Information and Regulatory Affairs (OIRA) is reporting that its review of the final IRS regulations on Qualified Opportunity Funds has concluded.

According to OIRA’s website, the review concluded on December 17 (RIN #1545-BP04). A draft of the final regulations should be posted to IRS.gov very soon, possibly later today or tomorrow.

The final regulations won’t take effect however until they are published in the Federal Register. That should happen within the next week or two, most likely before year’s end.

The IRS submitted the final regulations to OIRA — a division of the White House Office of Management and Budget (OMB) — on December 6.

OIRA reviews of previous tranches of proposed IRS regulations on Qualified Opportunity Funds had taken more than a month to complete. This final round of regulatory rulemaking needed significantly less review time.

This final set of regulations will merge the first and second tranches of guidance, and provide clarification on still unresolved issues. The final regs are expected to be 500+ pages in length.

There are a number of sticking points from the first two tranches of proposed regulations — many of which were discussed at the most recent IRS hearing on Qualified Opportunity Funds — that should be clarified in these final regs, including:

  • Data collection and reporting, and what Treasury’s limits may be.
  • Multi-asset fund exit options, and the discrepancies that exist between tax treatment at the different QOF, QOZB, and QOZBP levels.
  • Whether the substantial improvement test can be conducted on an aggregate basis, as opposed to an asset-by-asset basis.
  • The treatment of debt-financed distributions.
  • The treatment of Section 1231 gains.
  • The definition of vacant property.
  • How to pair the Opportunity Zone tax incentive with real estate tax credits such as New Markets, Low Income Housing, Renewable Energy, and Historic.

It has been nearly two years since the Opportunity Zone tax initiative was enacted as part of the 2017 Tax Cuts & Jobs Act, which was signed into law on December 22, 2017.

Treasury finalized certification of Opportunity Zones on June 14, 2018. Proposed regulatory guidance for Qualified Opportunity Funds was issued by the IRS in two tranches, first on October 19, 2018, and second on April 17, 2019.