By Angeline Rice, CPA, MT, MAcc; and David Sobochan, CPA, Cleveland for The Tax Adviser
Introduced as part of the law known as the Tax Cuts and Jobs Act, P.L. 115-97, Secs. 1400Z-1 and 1400Z-2 were designed to incentivize taxpayers to reinvest capital gains into low-income and economically distressed communities through qualified opportunity zone funds (QOFs). In exchange, a taxpayer can receive three federal income tax benefits: the temporary deferral of capital gains that are reinvested into a QOF, the partial exclusion of those deferred capital gains to the extent that the holding period requirements are met, and the permanent exclusion of gains from the sale of the investment in a QOF that has been held for at least 10 years.
Since the inception of the program, taxpayers have been in need of additional guidance to clarify the definitions of terms used in the statute, to explain certain operational aspects of how the program is intended to work. The lack of guidance has led to many taxpayers remaining “on the sidelines” and not making investments while they wait for this cloud of uncertainty to be lifted.
The IRS responded to this need for additional guidance by issuing the first set of proposed regulations on Oct. 29, 2018 (REG-115420-18). While this set of regulations provided taxpayers with a great deal of the guidance they needed, many questions were still left unanswered. This item discusses the clarifications and questions that were answered with the issuance of a second set of proposed regulations on May 1, 2019 (REG-120186-18).
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