Clarity Still Needed in Opportunity Zone Regulations

The Treasury Department and the IRS released the final guidance on the opportunity zone legislation. While it was long awaited, it provided some much needed clarity to opportunity zone investors and some good news in terms of flexibility on timing. However, there are still gray areas and unanswered questions, particularly in terms of triple-net leases. It is odd, because there had been several calls from the investment community for clarity on how these leases should be handled.

“The exact application or rules to triple net leases is still ambiguous,” Phil Jelsma, a partner and chair of the tax practice team at Crosbie Gliner Schiffman Southard & Swanson, tells GlobeSt.com. “The final regulations make clear that a single property leased on a triple net lease isn’t a trade or business.  However a three story building where two of the floors are leased on a triple net basis but the third isn’t can be a trade or business. It is not clear where the line starts and ends.”

In addition to triple net leases, Jelsma also said that the final regulations did not provide clear guidance on property the has been previously owned by an investor of the opportunity zone fund. “In addition, the precise treatment of property previously owned by a sponsor or investor and contributed to a qualifies opportunity zones is still unclear,” he says. There were several deals, particularly early on, where owners created a fund and transferred recently purchased assets to the fund.

This was the final release of guidance. For fund operators that are still seeking clarity, there won’t be any further commentary from the Treasury Department or the IRS. In this case, they can turn to legal professionals for help in understanding the regulations. “Since this is a final release, taxpayers should ask for both private letter rulings and published revenue rulings to help provide clarity on specific factual arrangements,” says Jelsma. “This should make it easier for many taxpayers.”