New Opportunity Zone Form Provides Clarity

Last week the IRS and the Treasury Department released a draft form for Qualified Opportunity Funds. The form, which is intended for the 2019 tax year, is designed to collect information about Opportunity Zone investments.

The form includes new reporting requirements for funds making investments under the Opportunity Zone provision, such as reporting the value of business properties, the census area of each business’s property and the value of the investments allocated to each census area.

“It [the form] is really a guide to help the tax planning and tax advisors work with their investment clients,” says Mike Krueger, counsel with Newmeyer Dillion who represents investors, developers, fund managers and nationwide brokerage firms in Opportunity Zone Projects. “It’s consistent with what the guidelines have been. I think that will give investors a little more confidence in this program.”

The form will be submitted to the IRS with the Qualified Opportunity Zone Funds investor documents, according to Krueger.

Krueger says investors also got a bit of a reprieve with the size of the form. “I think if it were a form that was 20 pages long instead three or four pages, it would give a lot of people some concern,” he says. “It’s still going to be incredibly sophisticated for drafting your qualified opportunities on business documents and proformas that you’re sending investors. But I think this is intended to simplify it from the investor’s standpoint.”

The new form has sections that require the investor to identify the track number where the Opportunity Zone investment is located and what is its current valuation.

“One of the requirements for qualifying an asset is that you’re going to substantially improve it,” Krueger says. “If you have the raw land, the easy part is to identify the value of it [after improvements]. But if you’re going to be redeveloping an existing structure, you have to improve the value by whatever the assessed value of that building is.”

This information in the form could allow policymakers to evaluate the economic impacts of Opportunity Zones.

“The form is establishing the basis,” Krueger says. “It says capital gain investment dollars were invested in 2019 on a track. So at least you’ll have a starting point for where that money went in.” But there are limits to what this data will provide. “You are not going to know how many jobs are being created from this form,” Krueger says. “We’re not going to know that from this form. Depending on how the property is taxed, maybe you’ll be able to figure out the improvement value from existing to increase value. So maybe you’ll be able to figure out how much more tax dollars are being generated from that property.”