The new tax law, known as the Tax Cuts and Jobs Act, allows states, the District of Columbia, U.S. possessions, and Puerto Rico to designate “Qualified Opportunity Zones” to encourage new capital investment in low-income communities (LIC Tracts) and contiguous census tracts (Eligible Non-LIC Contiguous Tracts). Each Qualified Opportunity Zone must be nominated by a state for designation as an Opportunity Zone by March 21, 2018. (See our e-alert addressing how opportunity zones are designated).
Earlier this month, in Revenue Procedure 2018-16, the IRS and the Community Development Financial Institutions Fund (CDFI Fund) simultaneously released guidance regarding the procedure for designating population census tracts as Qualified Opportunity Zones. The Revenue Procedure provides a “safe harbor” for states that rely on the CDFI Fund’s Opportunity Zone Information Resource. On February 27, 2018, the CDFI Fund updated and corrected this Information Resource to reflect a more inclusive analysis of census tracts that are not low-income census tracts but are eligible to be nominated as Qualified Opportunity Zones because they are contiguous with one or more LIC Tracts.
The Information Resource now includes qualified high migration tracts, low-population tracts within Empowerment Zones, and territorial data that meet the definition of an LIC Tract but were inadvertently excluded from earlier data. In total, these corrections resulted in 168 additional LIC Tracts (including 76 previously listed as Eligible Non-LIC Contiguous Tracts) and 1,007 additional Eligible Non-LIC Contiguous Tracts added to the Information Resource. In addition, 72 Non-LIC Contiguous Tracts were removed from eligibility. More than 42,000 census tracts nationwide are now eligible for designation as Qualified Opportunity Zones.
Ballard Spahr will monitor guidance from the IRS and CDFI Fund on Opportunity Zones and provide updates when guidance is released. Attorneys in Ballard Spahr's Public Finance Department and Tax Group have extensive experience working with clients on tax incentive programs for economically distressed areas. For further advice about Qualified Opportunity Zone designation and investments, please contact Wendi L. Kotzen, Linda B. Schakel or Adam S. Wallwork.
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