In one of our last Opportunity Zones webinars about 2021 trends and outlook, the topic of implementing standard reporting requirements for all Qualified Opportunity Funds came up. While the IRS requires information such as the value of the QOF’s investment and the EIN of each business that the QOF has an ownership interest, many stakeholders and industry leaders say it’s not enough.
“It doesn’t tell the whole story whether Opportunity Zones are doing the good they’re intended to do,” said Reid Thomas, Chief Revenue Officer and Managing Director at JTC and Top 25 2020 OZ Influencer. “The majority of OZ stakeholders support transparency and objective reporting. Legislation that would improve impact reporting and measurement has long been on the docket, most notably in 2019, when there was a bipartisan effort that called for increased reporting.”
The original language drafted for Opportunity Zones legislation required the Treasury Department to give a report to Congress about 5 years into the policy’s existence on the social impact and the nature of the designated Opportunity Zones. As a result of some parliamentary processes, those reporting requirements were stripped out of what was essentially impact reform in order to make sure that the actual provision got through without being “killed” in that parliamentary process, according to Shay Hawkins, former senior tax and economic policy advisor to Sen. Scott and President of Opportunity Funds Association.
The IMPACT Act was introduced by Sen. Tim Scott and co-sponsored with Sen. Krysten Sinema and former chair of the finance committee, Chuck Grassley. The proposed bill and acronym is about Improving and reinstating and Monitoring, Prevention, Accountabilities, Certification, Transparency provision of the Opportunity Zones Act. “Bipartisan support is important because the Senate Committee on Finance is obviously the primary tax writing committee in Congress and having a chairman on the bill was critical,” said Shay Hawkins, former senior tax and economic policy advisor to Sen. Scott and President of Opportunity Funds Association.
The IMPACT Act codifies certain reporting requirements for Opportunity Funds. “Requirements such as the total assets they have held in the fund, the location, the value of Opportunity Zone property held by the fund, whether the property is owned or leased, the location and industry classification of operating businesses, equity investment and the number of persons the fund expects to be employed to the various investments that they’re making,” explained Shay.
The proposed legislation also codifies requirements of what information that investors will see from the fund managers:
- Information requirements could include relevant dates on which investment positions are made.
- The descriptions of the various Opportunity Zone investments and other measures that will allow IRS track the deferral and recognition of gain.
- The IMPACT Act also adds some penalties for funds that fail to report in a timely and accurate manner.
Two key sets of requirements
According to Shay, the requirements above apply to funds and fund managers.
The second set of requirements are for the Treasury Department, which will be required to do an economic impact analysis that will measure several domestic and economic factors to determine the impact of the Opportunity Zone provision.
The Treasury Department will look at the information:
- The total number of funds;
- The total assets of all funds;
- The distribution of Opportunity Zone investments across their financial industry classification;
- The percentage of Opportunity Zones that have received investment through the incentive;
- The amount of Opportunity Fund investments made in each census tract and the ratio of real property investments to the operating businesses.
Over time the information will be available to compare the effectiveness of the Opportunity Zone fund investments, compared to those that are not.
“We are proud of the legislation and that the Opportunity Funds Association was able to help,” shared Shay. “We continue to stay hopeful for the prospect of it being signed into law sometime soon.”
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