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Author: Scarinci Hollenbeck, LLC
Date: December 26, 2019
The Firm
201-896-4100 info@sh-law.comThe Internal Revenue Service (IRS) recently published its much-anticipated final regulations on Qualified Opportunity Funds. The regulations build on prior guidance and provide additional information on how an entity becomes a qualified opportunity fund (QOF) or qualified opportunity zone (QOZ) business, and the requirement that a QOF or QOZ business engages in a trade or business. As described by the IRS, the final regulations retain the general approach of the proposed regulations but provide additional guidance and clarity to the rules regarding QOZ business property.
The Opportunity Zone tax initiative was established under the 2017 Tax Cuts & Jobs Act, which was signed into law on December 22, 2017. The program aims to encourage investors to direct capital into new projects in certain low-income rural and urban communities in exchange for federal capital gains tax advantages.
Since taking effect, the Internal Revenue Service (IRS) has issued two rounds of proposed regulatory guidance for Qualified Opportunity Funds — the first on October 19, 2018, and the second on April 17, 2019. The final set of IRS regulations will combine the first and second rounds of guidance, as well as provide clarification on issues that remain unresolved. Not surprisingly, the final regulations are expected to top 500 pages in length.
The IRS submitted the final regulations to the White House Office of Management and Budget (OMB) on December 6, 2019. The OMB concluded its review on December 17, 2019, and the IRS published them on its website on December 19, 2019. They will not take effect, however, until they are officially published in the Federal Register.
The final opportunity zone regulations are 544 pages in length. Among the wide range of topics covered, the IRS final regulations provide guidance regarding how to determine the qualification requirements and levels of new investment in Opportunity Zones. The regulations also clarify the types of gains that qualify for Opportunity Zone investments, as well as gains that may be excluded from tax after a 10-year holding period.
Given that it is impossible to summarize the regulations in one article, below is a brief summary of several key questions the IRS has addressed:
We encourage businesses involved in opportunity zone investment to review the full IRS regulations and contract experienced counsel with any questions. Look for further blogs from Jeff Cassin and Stephanie Edelstein for more on Qualified Opportunity Zones.
If you have any questions or if you would like to discuss the matter further, please contact Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.
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