Members of the United States House of Representatives Ways and Means Oversight Subcommittee have requested that the Department of Treasury consider three new ways to help bolster the Opportunity Zone (OZ) program to aid communities in distress.
In a letter, committee members urge the Treasury to consider the following changes:
- The implementation of a “rigorous certification process” for Opportunity Funds (O Funds), including an outline of measurable community benefits from OZ investments, increased reporting, and more detailed disclosure requirements.
- The allocation of dedicated staff, with the ability to collect and share data, to conduct program oversight through administrative authority.
- A transaction reporting requirement.
The letter, written by nine Democrats on the committee and dated Dec. 30, 2021, resulted from a committee hearing held on Nov. 16, 2021, regarding OZs and is signed by, among others, subcommittee chair Rep. Bill Pascrell of New Jersey.
The subcommittee hearing titled “The Opportunity Zone Program and Who It Left Behind” discussed ways that the Treasury could make the program more transparent, equitable, and beneficial for communities that are in need.
These suggestions focus mainly on transparency, reporting, and disclosure because the Treasury does not have the authority to change the Internal Revenue Code as it applies to the OZ program. However, the Treasury can implement regulations like those outlined in the letter.
Potential Impacts on the OZ Industry
In addition to urging that the Treasury promptly put the rules or some other similar requirements immediately into effect, the nine members asked to be made aware of any actions that the Treasury takes or plans, consistent with the President’s views on the program.
The letter comes as no surprise to anyone in the industry. Many in the OZ community have been asking that reporting requirements be implemented since the previous President passed the Tax Cut and Jobs Act of 2017. Although the original Opportunity Zone legislation included reporting requirements, they were removed under the 2017 tax reforms, and the program is operating without any data collection. Without the proper reporting, there’s no way of determining whether the program is successful because there a lack of measurable data.
While the Treasury may easily implement a change in reporting requirements, industry experts say that the more rigorous certification requirements would likely not be accomplished without an act of Congress. That’s because a lengthy certification process would not easily dovetail with current deadlines for timing requirements associated with the OZ program as it currently exists.
The goal of the proposed changes is to make the program more equitable, but this is a lofty challenge since the IRS isn’t responsible for ensuring equitability. The job of the IRS is simply to interpret and then enforce tax code as Congress intended.
There fear among others in the industry is that by increasing administrative burden on those who utilize OZ incentives, the feds could deter participation, which wouldn’t bode well for anyone. Historically, the Treasury has been known to interpret statutes to make it easier for investors to use the OZ incentive.
However, if the goal is to create more equitability in administering the OZ incentive, experts say it is up to Congress to set up parameters that the IRS can follow.
According to the subcommittee’s letter, more than 10% of the population of the United States lives in areas that are designated as Opportunity Zones. These designated tracts feature higher poverty rates, lower income levels, greater unemployment, and large populations of non-white Americans versus other census tracts.
The letter concludes by emphasizing a commitment to an accountable and results-driven program.
