Eversheds Sutherland Tax Group
As part of the Tax Cuts and Jobs Act of 2017, Congress enacted sections 1400Z-1 and 1400Z-2 of the Internal Revenue Code, which were intended to promote investments in low-income communities designated as “Opportunity Zones.” For businesses and investors that plan to dispose of appreciated property to unrelated parties, these rules offer significant opportunities to (1) defer, and potentially reduce, gains from such property, and (2) potentially realize tax-free gain on Opportunity Zone investments. On October 19, 2018, the US Treasury and the Internal Revenue Service (IRS) released highly anticipated proposed regulations (the Proposed Regulations), Revenue Ruling 2018-29 and certain IRS Forms that together provide businesses and investors with needed guidance on the application of these rules.

· The Proposed Regulations clarify which taxpayers are eligible, which gains are eligible, how a taxpayer elects the application of these rules, and what qualifies as a good Qualified Opportunity Fund (the entity through which a taxpayer must make an investment in an Opportunity Zone).

· Revenue Ruling 2018-29 clarifies the application of these rules to investments in land and existing buildings.

· While open questions remain and further proposed regulations are anticipated, this guidance answers many questions for businesses and investors considering investments in Opportunity Zones.