July 4, 2022

Volume XII, Number 185

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July 01, 2022

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Bipartisan Proposed Legislation Released for Qualified Opportunity Zone Investments

  • Bipartisan group of senators and representatives introduces legislation to extend the QOZ regime by two years.

  • The Act would bring back two previously expired QOZ benefits on deferred gains.

  • Under certain conditions, U.S. partnerships could be used as QOF feeder funds.

  • Reporting requirements would be expanded.

  • Certain existing QOZs would be disqualified from being QOZs and replaced with new QOZs.

In a bipartisan effort to pass new legislation to extend and provide for increased reporting under the Qualified Opportunity Zone (QOZ) Program, on April 7, 2022, members of Congress introduced the Opportunity Zones Transparency, Extension, and Improvement Act (the Act). Sens. Cory Booker (D-NJ), Tim Scott (R-SC), Mark Warner (D-VA), Chris Van Hollen (D-MD), and Todd Young (R-IN) introduced Senate bill S.4065, and Reps. Ron Kind (D-WI-03), Mike Kelly (R-PA-16), Terri Sewell (D-AL-07), Dan Kildee (D-MI-05), and Jackie Walorski (R-IN-02) introduced House bill HR 7467.

If the Act is enacted as proposed, it would include the following new measures:

1.  For amounts invested in either new or preexisting qualified opportunity funds (QOFs) (including investments in QOF feeder funds – see below), the deferral period of tax on capital gains invested in such QOFs would be extended to Dec. 31, 2028 (under current law, the tax is deferred until Dec. 31, 2026). In effect, this extends the QOZ regime by two years.

a.  If passed, this measure would also bring back two previously expired QOZ benefits:

i.  New and preexisting investments made in QOFs by Dec. 31, 2023, and held until Dec. 31, 2028, would qualify for the 10% discount on the deferred gain amount that becomes taxable on Dec. 31, 2028. (This is the same discount that applies under current law for investments in QOFs held for at least five years prior to the date of taxation of the deferred capital gains.); and

ii.  New and preexisting investments made in QOFs by Dec. 31, 2022, and held until Dec. 31, 2028, would qualify for an additional 5% discount (i.e., a 15% aggregate discount when combined with the benefit described immediately above) on the deferred gain amount that becomes taxable on Dec. 31, 2028. (This is the same discount that applies under current law for investments in QOFs held for at least seven years prior to the date of taxation of the deferred capital gains, except that the proposed bill would reduce the holding period required for obtaining such additional 5% discount from seven years to six years.)

2.  Effective from the date of enactment of the Act, taxpayers would be allowed to form (and invest eligible capital gains in) U.S. partnerships that can elect (if they meet certain conditions) to be QOF feeder funds, which may invest in other QOFs. (Under current law, QOFs are not allowed to invest in other QOFs.)

3.  Starting in taxable years beginning after enactment of the Act, the reporting requirements that apply with respect to QOFs would significantly expand. This change would include reporting of additional information about the investors in the QOFs and the qualified opportunity zone businesses (QOZBs) in which such QOFs invest. The proposed Act would apply new penalties for failure to report such information. The Department of the Treasury would also publish an annual report on national QOZ activity that includes aggregated data on such factors as the number of QOFs, total assets held by QOFs, and the distribution of QOZ investments.

4.  Certain existing QOZs would be removed (disqualified) from being QOZs and would be replaced with new QOZs. This change would include grandfathering rules (subject to certain requirements and conditions) for preexisting investments in QOZs that are disqualified by the new law. In particular, this change would impact tracts that have a median family income of 130% of the national median family income or greater. Operating QOZBs that conduct their businesses over multiple QOZ locations (i.e., employees working in QOZs, services delivered to customers accessing remote tangible servers located in QOZs, etc.) may wish to consider reviewing the status of each QOZ in which such businesses operate to determine whether such QOZs are on the disqualification list, and if so, whether their particular facts satisfy the grandfathering rules for qualified pre-existing investments.

The proposed Act is subject to legislative discussion and review. Any final version of this proposed legislation may differ slightly or materially from the current proposal.

©2022 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume XII, Number 111
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About this Author

James Lang, Greenberg Traurig Law Firm, Tax and Energy Law Attorney
Shareholder

James O. Lang focuses his tax and corporate project finance practice on tax credit incentive programs and related state and federal incentive programs.  Jim represents investors, lenders, community development entities, and for-profit and not-for-profit projects in complex transactions where capital stacks require enhancement through incentive financing, including state and federal new markets tax credits, affordable housing and low-income housing tax credits, historic rehabilitation tax credits, renewable energy tax credits, and film and entertainment tax credits. 

813-318-5731
Sanford Presant, Greenberg Traurig Law Firm, Los Angeles, Corporate, Real Estate and Tax Law Attorney
Shareholder

Sanford C. Presant, Chair of the firm's Real Estate Fund Practice, focuses his practice on providing fund and joint venture best practice business and tax structuring advice to sponsors of the leading real estate private equity funds, REITs, and their local partners and investors in the U.S. and internationally.

Sandy has more than 30 years of experience as a tax and business lawyer for major funds and real estate companies. He has structured and negotiated the tax and business aspects for over 100 real estate funds (including their internal...

310-586-7855
 Erez I. Tucner Shareholder GTLaw Mergers & Acquisitions Tax Cross-Border Tax Planning Private Wealth Services Audits, Litigation & Criminal Tax Defense Latin America Practice The Cloud
Shareholder

Erez I. Tucner is an experienced business and tax lawyer who focuses on structuring and negotiating the legal, business and tax aspects of complex multimillion-dollar domestic and cross-border mergers and acquisitions.

He has wide-ranging experience with the structuring and formation of domestic and offshore private equity funds, family offices, and hedge funds and their investments in the United States, Latin America, Europe, Israel and worldwide.

Erez counsels high-net-worth individuals on their businesses, investment assets, and real property (including U.S. real property...

212-801-9241
Brian Gaudet Tax Attorney Greenberg Traurig Boston, MA
Of Counsel

Brian Gaudet works with private and public companies to help design tax-optimal legal entity structures and day-to-day transaction flows. Brian has wide-ranging experience handling domestic and international transactional tax work for buyers, sellers, and investors as well as experience in state & local tax and tax incentive work, including Qualified Opportunity Zone transactions.

Brian also has Tax & Business practice experience that includes estate planning and trust & estate administration. Brian’s Corporate practice experience includes corporate governance &...

813-318-5705
Laura A. Hendee Attorney Tax Law Greenberg Traurig Tampa
Associate

Laura A. Hendee is a member of the Tax Practice in Greenberg Traurig’s Tampa office. Laura’s experience includes the preparation of entity formation documents relating to complex financial investments in Qualified Opportunity Zones, Qualified Opportunity Zone Businesses, tax credits, and related state and federal incentive programs.

813-318-5747
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