Renovation Discussion

The proposed form requires QOFs to report the employer identification number and disclose the location of the census tract where QOZ business property is owned or leased.

Tax strategies

New Information Reporting Requirements for Qualified Opportunity Funds

  • 11/21/2019

On October 31, 2019, the IRS and the Treasury Department issued a proposed draft form for Qualified Opportunity Funds (QOF) to provide more information on their investment activities. QOFs are an investment vehicle created as a partnership or corporation to use the proceeds of an investor’s eligible gains for developments in economically distressed areas called Qualified Opportunity Zones (QOZ). The QOF may use those proceeds to finance QOZ businesses, to acquire or develop real property, and to acquire personal property. Investors receive certain tax benefits for investing in the QOFs.

Some economic development thought leaders and members of Congress have requested more information on the investments of QOFs. The proposed Form 8996, Qualified Opportunity Funds, requires QOFs to report the employer identification number of each business in which it has an ownership interest and disclose the location of every census tract where QOZ business property is directly owned or leased by the QOF. Another proposed Form 8997 would require tracking of individual QOF investments.

These new reporting requirements will help the IRS and Treasury monitor the procedural compliance of QOFs with the Opportunity Zone (OZ) tax law and regulations. However, the proposed forms do not provide data such as job creation and other information that may be used to measure the overall economic impact of the QOF investment.

The authors of the original OZ tax law, Senators Cory Booker, D-N.J., and Tim Scott, R-S.C., had proposed data reporting requirements to benefit investors and potentially the public, but the language was not included in the legislation passed in the Tax Cut and Jobs Act of 2017. There is now some interest in Congress for adding those requirements to the existing law. Meanwhile another bi-partisan bill titled the Opportunity Zone Accountability and Transparency Act was just introduced in Congress, again with a focus on additional reporting and transparency.

How we can help

While it is unclear how proposed Forms 8996 and 8997 will resolve, they may signal the general direction of the reporting requirements down the road. Developers should become familiar with IRS and Treasury Department information requests, so they can start adding those tracking requirements into their project workflow when the forms are finalized.

CLA will continue to monitor the IRS, Treasury, and Congress for any additional reporting requirements for QOFs and for other changes to the OZ tax law and regulations, to help you make clear decisions and realize the full benefits of the Opportunity Zone program.