When opportunity zones were introduced as part of 2017’s Tax Cuts and Jobs Act (TCJA), there was widespread interest in the incentives for investing in low-income and disadvantaged areas, but also significant confusion about the application of those benefits that has prevented people from engaging with those qualified opportunity zone funds.
“We are as eager as anyone else to understand the effectiveness of opportunity zones,” said David Kautter, assistant secretary for tax policy at the U.S. Department of the Treasury, speaking at the Bloomberg Tax Leadership Forum on Nov. 19, 2019, at the Newseum in Washington, D.C. “This provision is so important to parts of the country that are struggling.”
The Treasury released two sets of guidance on opportunity zones earlier this year and is on the verge of releasing a third, more comprehensive set of regulations soon.
“We’ve gotten extensive comments from federal agencies and tax practitioners with respect to opportunity zones,” Kautter said, explaining that the forthcoming package is currently over 550 pages long, and that the Treasury hopes to launch it before the end of December. “We are actively hoping to get an extensive amount of guidance out in the next two months, and the rest by the end of January.”
Kautter also discussed two pieces of the TCJA that have forthcoming guidance from the U.S. Treasury: 163(j) Business Interest Expense Limitations and Section 385 Earnings Stripping Rules.
“163(j) is a little bit behind opportunity zones, but in terms of length, it makes opportunity zones look like a piker,” Kautter explained. “It touches on many elements of the tax law, the economy, and businesses, so it’s been a really intricate process … to get the IRS and Treasury focused and working together to develop an integrated package.”
Kautter added that in the interest of expediency, there will inevitably be issues left unaddressed in the new guidance.
“As lengthy as it will be,” he said, “there will still be issues that people identify that we haven’t covered.” Kautter said that the guidance will be released if not by the end of the year, then early in January.
With regard to Section 385, Kautter explained that along with the release that came out a few weeks ago removing the “overly burdensome” documentation requirements from the earnings stripping regulations, the Treasury also released an Advance Notice of Proposed Rulemaking (ANPRM) for more forthcoming guidance on the subject.
“We’re trying to come up with an integrated ecosystem dealing with debt equity issues,” he said, one that attempts to prevent inversions while taking into account “all the legislative change that has occurred over the last few years.”
The work is still in the formative stage, Kautter said, and has thus far collected 10,000 comments from the public about various TCJA topics.
“I think that’s the important message there. It’s not like we’ve got some idea we’re committed to and we’re trying to justify it. We’re not,” he said. “We’re trying to figure out how all of this fits together and the more input we have, the better our next proposal will be.”