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NCSHA Submits Comments to IRS on Proposed Opportunity Zone Regulations

Published on January 3, 2019 by James Tassos
NCSHA Submits Comments to IRS on Proposed Opportunity Zone Regulations

On December 28, NCSHA submitted official comments to the Internal Revenue Service (IRS) on proposed regulations implementing Opportunity Zone (OZ) provisions of Internal Revenue Code section 1400Z-2.

In our comment, NCSHA encouraged IRS to consider land or property vacant for a period of at least one year as meeting the original use requirement referenced in the OZ statute, consistent with rules under the Enterprise Zone incentive. We suggested in the letter that this safe harbor would facilitate the redevelopment of vacant and abandoned properties in distressed communities and greatly enhance the impact of the OZ incentive.

The letter also addressed several issues relating to the substantial improvement rules for OZ property. NCSHA supported a provision of the proposed regulations that the basis attributable to land on which a building sits is not taken into account in determining whether the building has been substantially improved, as it would provide additional flexibility in selecting appropriate sites and redeveloping vacant or abandoned buildings in qualified Opportunity Zones.

On a related issue, we suggested that IRS clarify that land and buildings acquired prior to 2018 qualify as OZ property, so long as the substantial improvement of such property commences in 2018 or after. We also suggested that IRS provide an exception to the substantial improvement test for OZ investments made in conjunction with the Housing Credit, by adopting the Housing Credit’s substantial rehabilitation rules in these instances.

The comment also includes several suggestions relating to OZ business requirements. We recommended that the regulations provide additional guidance on the definition and expectation of substantial improvement for OZ business investments. In particular, we urged IRS to treat tangible and intangible property of a qualifying business the same so that businesses with intangible assets (i.e., STEM, software, or biotech companies) are not disadvantaged in attracting OZ investment.

In response to the proposed requirement that for each taxable year at least 50 percent of the gross income of a qualified OZ business is derived from the active conduct of a trade or business in the Opportunity Zone, we encouraged IRS to provide a lower threshold or exceptions to this rule for internet-based businesses or research and development entities located in Opportunity Zones.

The letter also encouraged IRS to specify OZ reporting requirements in program guidance, to prohibit OZ investments that eliminate affordable housing units in a designated OZ without associated development of an equal number of replacement affordable units, and to provide additional guidance on self-certification of a Qualified Opportunity Fund.

For more information on the comment letter, please contact NCSHA’s Jim Tassos.