Entrepreneurship | October 22, 2018

Opportunity zone regulations could spur small business investing

Dennis Price
ImpactAlpha Editor

Dennis Price

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.