Posted by Chris Raddatz
The Internal Revenue Service (IRS) released its second batch of guidance late last month regarding “opportunity zones.” Opportunity Zones were created as part of the Tax Cuts and Jobs Act of 2017 to incentivize investment in designated, economically distressed communities. The 169 pages of proposed regulations provide additional guidance to investors, fund managers and others seeking to bring equity capital to operating and real estate businesses within the OZs.
While many investors and fund managers have been active in investing in the OZs, the lack of regulatory guidance has somewhat limited the activity, especially as to operating businesses (versus real estate investment). Significant issues affecting operating businesses were addressed, including making leased properties eligible for the tax breaks, determining how gross income generated within the OZ is measured, and defining how an asset is “substantially improved.” Other facets of the proposed regulations address how opportunity funds are operated and guidelines for real estate investing within the OZs.
One criticism of the OZ program is that it contains no mechanism or test to monitor investments within the OZs and whether the communities are actually benefitted as intended. This round of guidance does not impose any reporting requirements that would assist in that effort. Instead, the IRS has asked for input from the public as to how best measure economic activity in the OZs and collect that information.
Chris Raddatz helps individuals and companies thrive in their respective industries by providing top-level legal advice and representation through complex legal matters related to commercial real estate acquisitions, real estate lending, refinancing and workouts, planned community development, and drafting and enforcement of commercial space and ground leases. Chris has also become a highly sought-after speaker and presenter, discussing various real estate issues, including boundary disputes, title insurance, land surveys and legal descriptions.