The IRS' recently proposed guidance to regulate tax incentives for investments in economically distressed areas has left businesses confused about how some of the rules would be applied and how some key terms should be defined.

For example, when a building is acquired in a qualified opportunity zone, the IRS has proposed disregarding the cost of land to determine whether substantial improvements have been made to the building. However, the guidance does not address how the substantial improvement rule will be applied when only vacant land is purchased, according to Wendi Kotzen, an attorney and Co-Practice Leader of Ballard Spahr's tax group.

"What we hope to find out is whether if you buy land only, do you have to spend an amount equal to the cost of the land to substantially improve it? … Is the land automatically a good asset?" Kotzen said.

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