opportunity zones

Based on case studies of Qualified Opportunity Funds—investment vehicles organized for investing in Opportunity Zones— the tax incentive attracted investment in a variety of projects, including multifamily housing, self-storage facilities, and renewable energy businesses. According to survey responses and other sources, most projects are real-estate focused.

Through 2019, more than 6,000 Qualified Opportunity Funds had invested about $29 billion, based on partial data from the Internal Revenue Service (IRS).

Letter pay taxes on any gain due to appreciation of investments in Opportunity Zones if those investments are held in a fund at least 10 years.

IRS developed plans to ensure Qualified

Opportunity Funds and investors are complying with the tax incentive's requirements; however, IRS faces challenges in implementing these plans. Specifically, the plans depend on data that are not readily available for analysis. In addition, funds have attracted investments from high-wealth individuals, and some funds are organized as partnerships with hundreds of investors. IRS considers both of these groups to be high risk for tax noncompliance generally. However, IRS has not researched potential compliance risks these groups pose for this tax incentive. As a result, IRS may be unable to effectively direct compliance efforts.

As shown in figure 1, to receive these tax benefits, generally taxpayers must first invest the amount of their original gains in a Qualified Opportunity Fund within 180 days of realizing those gains; in turn, the funds must invest in property located within the Opportunity Zones.5

Recommendations from the GAO:

· Tax benefits to investor vary with time of investment

GAO is recommending that IRS address risks caused by limited data availability, and research compliance risks of high-wealth investors and large partnership Qualified Opportunity Funds. IRS generally agreed pending available resources.

· Deferred tax on original gains until 2026 (or earlier sale)

· Up to 15 percent exclusion of the original gain (Deferred tax on the gain decreases 10 percent after the investment is held at least 5 years and another 5 percent after 7 years)

· Generally, no tax on qualified property gain if held at least 10 years

· Investor: Invests gains within 180 days of realizing them

5Investors with gains reported to them by a pass -through entity such as a partnership, Scorporation, or certain trusts have the option to start the 180-day time limit on any of the following three dates: (1) the date the flow-through entity realized the gain, (2) the last day of the flow-through entity’s tax year, or (3) the due date of the flow-through entity’s tax return without extension.