Impact and community investors have been pushing for federal rules that would ensure opportunity zone investments drive improvements and wealth creation for residents of the zones. The two fronts: encouragement for investment in small business; and basic data reporting and transparency.
Long-awaited rules released by the U.S. Treasury on Friday showed progress on the small-business front. On impact reporting, not so much. (Want to parse the regs for yourself? Have at the proposed regulations and revenue ruling, and let us know what you think.)
- Tangible assets. Last year’s tax bill requires 90% of opportunity fund assets to be invested in qualifying property, including businesses. The new regulations say an opportunity zone business must have at least 70% of its tangible property within a zone. John Lettieri of the Economic Innovation Group, which helped develop the legislation, called that a positive first step. Businesses may hold working capital for up to 31 months, as long as they have a plan to use the capital. The ruling, “opens up significantly the kind of businesses to invest in,” tweeted Village Capital’s Ross Baird.
- Impact reporting. The regulations don’t require any sort impact or data reporting. Also missing: Guidance on the tax treatment of interim gains reinvested by opportunity funds. Extending the capital-gains tax relief for such interim gains has been seen as friendly to business investments.
- Explainers: Check out analyses from The National Law Review, Novogradac & Co and Stroock.
“The real success of Opportunity Zones comes down to the people who decide to develop and implement funds themselves, and the values they bring to it,” Baird tweeted. A second tranche of rules is expected by year’s end.